• Bank Indonesia (BI) held its policy rate steady at 5.75% during its meeting on February 18-19, 2025. It also maintained the deposit facility (DF) rate and lending facility (LF) rate at 5.0% and 6.5% to keep inflation within the target range, stabilize the Rupiah, and drive economic growth amid global uncertainties. BI has implemented the following key measures: - Strengthening the pro-market monetary operations strategy to attract foreign capital inflows by: 1) optimizing existing monetary instruments such as Bank Indonesia Rupiah Securities (SRBI), Bank Indonesia Foreign Exchange Securities (SVBI) and Bank Indonesia Foreign Exchange Sukuk (SUVBI); 2) enhancing the interest rate structure of monetary instruments to attract investment; 3) strengthening strategies to maintain competitive term-repo and forex swap transactions, and 4) reinforcing the function of Primary Dealers (PD) to increase SRBI transactions and repo transactions.
- Stabilising the Rupiah through foreign exchange market intervention with a focus on spot and Domestic Non-Deliverable Forward (DNDF) transactions, as well as government securities (SBN) in the secondary market.
- Expanding the instruments available to retain and utilize foreign exchange proceeds from the export of natural resources, such as placements in term foreign currency deposits (TD Valas DHE) with tenors up to 12 months, and the utilization of TD Valas DHE as collateral for Rupiah loans.
- Raising the maximum Macroprudential Liquidity Incentive (KLM) from 4% to 5% of third-party funds, thereby increasing the credit support limit for housing loans to Rp80 trillion (from Rp23 trillion), effective from April 1, 2025.
- Strengthening the prime lending rate (PLR) transparency policy with a focus on interest rates in the KLM policy priority sectors.
- Expanding digital acceptance as a firm commitment of Bank Indonesia.
- Strengthening and expanding international cooperation among central banks, including payment system connectivity and local currency transactions (LCT).
• The Consumer Price Index (CPI) fell to 0.76% YoY in January 2025 (down from 1.57% YoY in December 2024), due to the government policy of discounting electricity rates for households with an installed electrical capacity of ≤2,200VA, coupled with the price control of agricultural products by BI in cooperation with local governments. The inflation target set by BI is in the range of 1.5-3.5%.• The Rupiah exchange rates remain under control of BI and show an upward trend in February 2025, closing at IDR16,208/USD on February 18, 2025, a gain of 0.64% from the level recorded at the end of January 2025. This was driven by Bank Indonesia's stabilization policy and supported by efforts to maintain foreign capital inflows and attractive yields on domestic financial instruments for investors. • KResearch views that the low inflation rate anticipated for this year could provide room for BI to further cut rates in the second half of 2025 in a bid to mitigate external risks and support economic growth, in line with BI’s projected target of 4.7-5.5%. However, BI’s decision to lower interest rates will still primarily be based on the Rupiah’s stability.
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