Bank Indonesia (BI) is expected to reduce its benchmark interest rate, or BI-rate, twice by a total of 50 basis points (bps) by the end of 2024, Kontan.co.id reported.
Senior Economist at Bank Permata, Faisal Rachman, noted that BI has the capacity to lower its interest rate this year, in line with controlled inflation and the US Federal Reserve's interest rate policy.
Currently, domestic inflation stands at a low 2.13% as of July 2024.
"This opens up the possibility for BI to make one or two rate cuts this year," Faisal stated during a discussion on August 8.
However, the direction of the BI-rate policy will also depend on geopolitical tensions, particularly in the Middle East, and the certainty of the US economic downturn, provided it does not significantly disrupt the market.
As a result, with the potential 50 bps reduction in the BI-rate, BI’s interest rate is expected to be at 5.75% by the end of 2024. It is noted that BI maintained its benchmark interest rate at 6.25% in June 2024, following an increase in April 2024.
Previously, BI Governor Perry Warjiyo hinted at the possibility of lowering the benchmark interest rate in the fourth quarter of 2024.
"For now, we are keeping the BI-rate at 6.25%, and we will consider lowering it in the fourth quarter if there is room to do so," BI Governor Perry Warjiyo said during a meeting with the Indonesian House of Representatives' Budget Committee (Banggar DPR RI) on August 7.
Perry explained that the decision to lower the interest rate would depend on the stability of the rupiah. Therefore, BI is currently focused on stabilising the exchange rate, which has been experiencing a weakening trend recently.
BI aims to keep the rupiah stable within the range of IDR15,700 to IDR16,100 per US dollar by the end of this year.
"If the rupiah exchange rate stabilises, we may consider a rate cut in the fourth quarter of 2024," he said.