LPEM FEB UI Predicts BI Will Hold Interest Rates At 5 Percent On The September RDG

Bank Indonesia (Photo: Antara)

JAKARTA - The Institute for Economic and Community Research, Faculty of Economics and Business, University of Indonesia (LPEM FEB UI) estimates that Bank Indonesia (BI) will maintain its benchmark interest rate (BI Rate) at the level of 5.00 percent at the Board of Governors' Meeting (RDG) which will be held on September 16, 2025.

According to the Macroeconomic economist LPEM UI, Teuku Riefky, after cutting interest rates twice in July and August twice, BI is considered necessary to take breaks to evaluate the effectiveness of the monetary policy transmission that has been implemented.

"Bank Indonesia needs to maintain the BI Rate interest rate at the level of 5.00 percent at the September 2025 Board of Governors meeting to evaluate the effectiveness of policy transmission while closely monitoring the volatility of the Rupiah," he said in the Macroeconomic Analysis Series Report of the BI Board of Governors Meeting in September 2025, quoted Wednesday, September 17.

Meanwhile, this prediction is based on various considerations both from within and outside the country. From the domestic side, annual inflation in August was recorded at 2.31 percent, still within the BI target range, while core inflation fell to 2.17 percent.

Riefky also reminded that the burden sharing cooperation between BI and the government can indeed reduce pressure on the state budget, but on the other hand it can raise concerns about the independence of monetary policy, especially in maintaining the credibility of the targeting inflation framework.

"Thus, Bank Indonesia needs to maintain a balance between accommodative attitudes and firm policy communication so that inflation expectations are maintained and avoid the perception of the subordination of monetary policy towards fiscal interests," he explained.

In addition, he said that BI also needed to be aware of exchange rate fluctuations, although it had strengthened in early September due to the entry of foreign capital flows, the rupiah exchange rate was under pressure again after the cabinet reshuffle, which triggered the outflow of foreign funds to reach 960 million US dollars.

Riefky conveyed that another external factor that was also considered was the policy direction of the United States Central Bank (Federal Reserve).

According to him, market participants currently estimate that the Fed will cut its interest rates, along with signs of weakening the US labor market and potentially becoming a positive sentiment for capital flows entering developing countries such as Indonesia.

Even though inflation is increasing, the market is still anticipating a decline in the Fed's policy interest rate at the FOMC meeting in September. Policy interest rates have been maintained in the range of 4.25 percent to 4.50 percent since December 2024, but the expectations of a decline are getting stronger after the emergence of signs of weakening the US labor market," he said.