Bank Indonesia Holds Reference Interest Rate at 6.25% in June 2024

Bank Indonesia (BI) held its benchmark interest rate, the BI 7-Day Reverse Repo Rate (BI7DRR), steady at 6.25% in June 2024. This decision was made during the BI Board of Governors meeting on June 19-20, 2024.

In line with this, the deposit facility interest rate remains at 5.5%, and the lending facility interest rate at 7%. BI stated that this decision is consistent with its pro-stability monetary policy, a pre-emptive and forward-looking measure to ensure inflation remains within the target range of 2.5±1% in 2024 and 2025.

"This policy is supported by strengthened monetary operations to enhance the effectiveness of rupiah exchange rate stabilization and attract foreign capital inflows," BI wrote in its press release on Thursday (June 20, 2024).

Meanwhile, macroprudential and payment system policies remain pro-growth to support sustainable economic growth. BI explained that a loose macroprudential policy continues to be implemented to encourage bank lending and financing to businesses and households.

"Payment system policies are aimed at strengthening the reliability of infrastructure and the structure of the payment system industry, as well as expanding the acceptance of digital payment systems," BI said.

On the other hand, BI noted that global financial market uncertainty remains high amid a stronger global economic outlook. Global economic growth in 2024 is projected to reach 3.2%, higher than the initial forecast, mainly due to better-than-expected growth in India and China.

The US economy is growing strongly, supported by improved domestic demand and increased exports, with the decline in US inflation still slow. This condition suggests that the fed fund rate (FFR) is not expected to fall until the end of 2024.

Meanwhile, the European Central Bank (ECB) has lowered its monetary policy interest rates more quickly in line with lower inflationary pressures.

"This divergence in monetary policies of advanced economies, along with persistent geopolitical tensions, is causing high global financial market uncertainty," BI stated.

In addition to this factor, high US Treasury yields have strengthened the US dollar, increasing pressure on the weakening of various world currencies and hindering foreign capital inflows into developing countries.

According to BI, this high global financial market uncertainty requires a strong policy response to mitigate the negative impacts of the spillover of global uncertainty on the economies of developing countries, including Indonesia.