JAKARTA - Bank Indonesia (BI) decided to lower the benchmark interest rate or BI-Rate by 5.75 percent. In addition, it also lowers deposit facility interest rates and lending facility rates by 5 percent and 6.50 percent, respectively.
BI Governor Perry Warjiyo said he decided to lower the benchmark interest rate at the level of 5.75 percent as a step to be consistent with the focus of prostability monetary policy.
"The Meeting of the Board of Governors (RDG) of Bank Indonesia on January 14 and 15, 2025 decided to reduce the BI-Rate by 25 basis points to 5.75 percent, the deposit facility interest rate fell by 25 basis points to 5 percent and also the lending facility rate fell by 25 basis points to 6.50 percent," Perry said at a press conference, Wednesday, January 15.
Perry conveyed the reason why BI cut interest rates was because there had been changes in the views of the central bank's prostability and growth and the open space for lower interest rates.
"Well, the time is of course, according to the dynamics that occur globally and internationally, and we keep repeating that from month to month," he said.
Perry said his party also monitors global and domestic dynamics and pays attention to the direction of policy clarity that was mainly pursued by the US government and the Fed Fund Rate (FFR).
Perry explained earlier that the market estimated that the FFR would fall by 50 bps to 75 bps by 2025. However, BI estimates that the FFR will only fall by 25 bps this year.
"The Fed Fund Rate policy, which originally started from 2025, could be at least 50-75 bosses and then dropped, maybe 50 bps. Now we are starting to understand, maybe the Fed Fund Rate is only once 25 bps, we have calculated that," he said.
In addition, Perry conveyed global factors that influence the direction of the BI-Rate movement, including the policy direction taken by the US government after Donald Trump was elected US President in the 2024 election and the Fed policy.
From the observations, Perry said that the condition of global uncertainty this year is still high but can still be measured, especially regarding the policy direction of the US government's fiscal deficit, which reaches 7.7 percent of gross domestic product (GDP), and how much is the impact of this year's US Treasury yield increase.
Meanwhile, for domestic factors, Perry said that inflation will still meet the target of 2.5 percent plus minus 1 percent and in the next two years it is estimated that it is still low, so there is still room for lower interest rates.
"We have also been able to estimate the direction of the dollar index movement. We don't have to wait for everything to be clear, the name decision-making always faces uncertainty, there are two of them," he said.
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In addition, Perry said that the movement of the rupiah exchange rate will remain BI's main focus. Even so, the current condition of the rupiah exchange rate is relatively stable and in line with its fundamental value going forward.
Perry further added that the reason BI cut interest rates this month was based on data in the fourth quarter of 2024. As economic growth is estimated to be still in the range of 5 percent by the end of 2024.
Then, the prediction of Indonesia's economic growth in 2025 was previously estimated to reach the level of 4.8 percent to 5.6 percent with a midpoint of 5.2 percent, to 4.7 percent to 5.5 percent to a midpoint of 5.1 percent.
"This is the timing to lower interest rates in order to create a better growth story or encourage growth to create growth," he concluded.
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