At the end of 2024, Bank Indonesia will maintain the interest rate at 6% to control inflation in 2025.

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 December 17-18, 2024.

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

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

BI adds that its monetary policy focus is on strengthening the rupiah's exchange rate stability against the increasing uncertainty in the global economy due to US policy direction and escalating geopolitical tensions in various regions.

"Going forward, Bank Indonesia will continue to monitor rupiah exchange rate movements, inflation prospects, and evolving economic conditions in utilizing the room for further policy interest rate cuts," BI said in its press release on Wednesday (December 18, 2024).

The rupiah's monthly exchange rate, based on the latest data from December 17, 2024, weakened by 1.37% (point-to-point) from the previous month.

BI acknowledges that this weakening was influenced by increasing global uncertainty, primarily the direction of US policy, lower room for FFR reduction, broad strengthening of the US dollar, and geopolitical risks, leading to continued global investor preference for reallocating their portfolios back to the US.

However, BI claims that the rupiah's weakening remains controlled, compared to the end of December 2023, recording a depreciation of 4.16%, smaller than the depreciation of the Taiwan dollar, Philippine peso, and Korean won, which depreciated by 5.58%, 5.94%, and 10.47%, respectively.

Meanwhile, Indonesia's economic growth remains strong, supported by domestic demand. BI observes that investment is projected to grow positively in Q4 2024, supported by the completion of various National Strategic Projects (PSN) and private investment supported by government incentives.

External factors to consider include increasing uncertainty in the global financial market coupled with the risk of a slowdown in global economic growth.

BI mentions that planned US trade policies, through increased import tariffs on commodities and a wider scope of countries, have created a risk of increased fragmentation of world trade.

"This development, coupled with escalating geopolitical tensions in many countries, means that global economic growth in 2025 is projected to slow to 3.1% from 3.2% in 2024," BI stated.