BI Holds Reference Interest Rate at 6% in October 2024

Bank Indonesia (BI) holds its benchmark interest rate, the BI 7-Day Reverse Repo Rate (BI7DRR), steady at 6%. This decision follows a Board of Governors meeting (RDG) held on October 15-16, 2024.

The deposit facility interest rate remains at 5.25%, and the lending facility interest rate remains at 6.75%.

BI states that this decision is consistent with its monetary policy direction to ensure inflation remains within the target range of 2.5% ± 1% in 2024 and 2025, while supporting sustainable economic growth.

BI adds that the short-term monetary policy focus is on the stability of the Rupiah exchange rate due to increased global financial market uncertainty.

"Going forward, Bank Indonesia will continue to assess the room for lowering the policy interest rate while considering the prospects for inflation, the Rupiah exchange rate, and economic growth," BI wrote in its press release on Wednesday, October 16, 2024.

BI details that the Consumer Price Index (CPI) inflation in September 2024 decreased and remained within the target range of 2.5% ± 1%. CPI inflation was low across all components, reaching 1.84% (yoy) in September 2024. Core inflation was recorded at 2.09% (yoy), while volatile food (VF) inflation continued to decline to 1.43% (yoy).

Meanwhile, the Rupiah exchange rate weakened by 2.82% (ptp) from the previous month until October 15, 2024. This weakening was mainly influenced by increased global uncertainty due to the escalation of geopolitical tensions in the Middle East.

BI also explains that the Indonesian economy continues to grow well and needs to be further stimulated for higher growth. Third-quarter 2024 economic growth was supported by domestic demand.

BI observes that global financial market uncertainty has increased again, amid the convergence of monetary policies in advanced economies.

"Geopolitical tensions in the Middle East have driven increased global financial market uncertainty," BI wrote.

In the economic field, BI says, world growth in 2024 is projected at 3.2%, with a slowing tendency. Global inflation is trending downward, prompting convergence towards easing monetary policy, particularly in advanced economies.

In the United States (US), the latest unemployment rate release shows improvement amid lower inflation prospects, thus driving market expectations for a lower Fed Funds Rate (FFR) than initially predicted. This has caused an increase in the 2-year and 10-year US Treasury yields and the US dollar index (DXY).

"Going forward, the downward trend in advanced economies' policy interest rates, particularly in the US, is expected to continue, although the dynamics of geopolitical tensions need to be continuously monitored," said BI.