BI Rate Cuts Are Considered To Have A Positive Impact On The Real And Banking Sector

Photo: Doc. Antara

JAKARTA - Capital Market Observer and Professor of the Faculty of Economics and Business, University of Indonesia (FEB UI) Budi Frensidy said that cutting the benchmark interest rate by Bank Indonesia (BI) would have a positive impact on the real sector and the banking sector in the country.

In the January 2025 Board of Governors Meeting (RDG) on Tuesday January 14 and Wednesday January 15, BI decided to reduce BI-Rate by 25 basis points (bps) to a level of 5.75 percent.

"BI interest rates are good for the real sector and also for banks," said Budi, quoted by Antara, in Jakarta, Thursday, January 16.

On the other hand, according to him, cutting the benchmark interest rate by BI will put pressure on the rupiah exchange rate against the US dollar.

Moreover, he continued, it would be added if the US central bank Federal Reserve (The Fed) would not cut its benchmark interest rate in the upcoming meeting.

The Fed is scheduled to hold a Federal Open Market Committee (FOMC) meeting on January 28-29, 2025 later this month.

"However, it makes the rupiah even more lower, especially if the Fed interest rate is not cut," said Budi.

On this occasion, he projects that the Fed's opportunity to cut or not its benchmark interest rate is fty-fty or 50 percent compared to 50 percent at the January 2025 meeting.

"The Fed's opportunity to lower interest rates I think is 50:50," said Budi.

Previously, regarding the reduction in the benchmark interest rate, BI Governor Perry Warjiyo explained that the decline in BI-Rate was to encourage growth in terms of domestic demand.

"This is the timing to lower interest rates, in order to create a better growth story," said Perry.