Indonesia’s central bank cut the benchmark interest rate earlier than expected to 6.0%

• Bank Indonesia (BI) trimmed the benchmark interest rate by 0.25% to 6.0% at its meeting on September 18, 2024, marking the first rate cut in three years, and defying market expectations. The market expected that the BI would hold the policy rate steady and cut once later this year.
• This rate cut reflects the IB’s shift in focus towards supporting Indonesia’s economic growth amid easing pressure from the Rupiah’s depreciation. After the BI raised the policy rate in April 2024 to maintain currency stability, the Indonesian Rupiah has strengthened by 5.91% against the US dollar since April 2024, while inflation has stabilized within the target range of 1.5%-3.5%, allowing the authority to implement easing monetary policies.
• Clarity on the Federal Reserve’s (Fed) interest rate trend, with an expect rate cut at its September meeting, encouraged the BI to consider reducing its interest rate this time, marking one of the first countries in ASEAN to make a rate cut decision. Earlier, the Philippines reduced its policy interest rate in August 2024 to support its economy, similar to Indonesia.
• Indonesia’s monetary policy may be relaxed further, as there will be three more board meetings later this year scheduled on October 16, November 20 and December 18. Bloomberg expects that the BI will cut the policy rate at least once more to support continuous economic growth while KResearch deems that that the Indonesian economy will maintain growth at 5.0% in 2024.

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