21-12-2023 (JAKARTA) Indonesia’s central bank, Bank Indonesia (BI), chose to maintain its main policy rates at its final meeting of the year on Thursday, as anticipated. The bank also hinted at the possibility of monetary easing in the second half of 2024.
BI opted to keep the benchmark 7-day reverse repurchase rate at 6.00 percent, a level it has maintained since October. The overnight policy rates were also left unchanged.
Although inflation in Southeast Asia’s largest economy has cooled more rapidly than expected by the central bank, the country’s growth has weakened this year due to declining exports driven by falling commodity prices and sluggish global trade.
During a press conference, BI Governor Perry Warjiyo explained that the decision to maintain rates was in line with the focus of a pro-stability monetary policy. It aimed to strengthen the stability of the rupiah exchange rate and take preemptive and forward-looking measures to ensure inflation remains under control within the target range of 1.5 percent to 3.5 percent in 2024.
BI kept its GDP outlook steady, forecasting growth between 4.5 percent and 5.3 percent for this year, and between 4.7 percent and 5.5 percent in 2024.
Since August 2022, BI has raised interest rates by a total of 250 basis points as part of a tightening cycle intended to curb rising inflation and stabilize the rupiah exchange rate, which experienced volatility this year due to capital outflows as the United States raised its interest rates.
When asked if Indonesia would follow the Federal Reserve’s actions, Governor Warjiyo responded with a “no.”
He stated that the decision on interest rates would depend on domestic inflation. Additionally, the central bank anticipates lower foreign exchange risks in the second half of next year, which may provide room for a loosening of monetary policy.
However, Warjiyo added that there was a possibility of the Federal Reserve cutting rates by as much as 50 basis points in the second half of 2024.
Indonesia’s inflation returned to BI’s target range earlier than expected this year. In November, inflation stood at 2.86 percent, falling within BI’s range of 2 percent to 4 percent for 2023. It also fell within the new inflation band of 1.5 percent to 3.5 percent set for 2024.
All economists surveyed by Reuters predicted that BI would keep rates unchanged, with expectations that the central bank’s board of governors would begin easing monetary policy in the third quarter of 2024.
Following dovish comments from Federal Reserve policymakers, the rupiah strengthened in the past week. However, the currency remained relatively stable after Thursday’s announcement.
