Indonesia's central bank made an unexpected move to reduce interest rates for the first time after five policy sessions. This decision aims to bolster economic growth, citing the anticipation of lower inflation in the coming years.
Under the leadership of Governor Perry Warjiyo, Bank Indonesia reduced the benchmark rate by 25 basis points to 5.75 percent on Wednesday, contrary to economists' expectations of a rate hold. This adjustment marks the first rate cut since September 2024, positioning the BI rate at its lowest since September 2023. Correspondingly, the deposit facility and lending rates were also reduced to 5.00 percent and 6.50 percent, respectively.
"This decision aligns with the projected low inflation for 2025 and 2026, which remains within the target range of 2.5±1%. This facilitates the stabilization of the Rupiah exchange rate according to fundamentals, aiming to control inflation and support economic growth," stated the central bank.
The central bank revised its growth forecast for the year, reflecting diminished demand for Indonesian exports, weaker household consumption, and reduced investment. The bank anticipates economic growth in 2024 to be slightly under the midpoint of the 4.7 - 5.5 percent range. This year's growth is expected to stay within this range, though lower than the previous forecast of 4.8-5.6 percent.
Inflation remained within the target range of 2.5±1 percent in 2024 and is projected to maintain similar levels this year. Headline inflation saw a minor increase in December, reaching 1.57 percent, up from a three-year low of 1.55 percent in November.
An economist from Capital Economics described the rate cut as a "major surprise." "Given the recent Rupiah weakening, which has depreciated nearly 7 percent against the US dollar since late September due to a robust US economy and uncertainties surrounding Trump's economic policies, we had expected rates to remain unchanged," commented Leather. "Governor Warjiyo provided no rationale for the abrupt policy shift, a move that seems particularly puzzling as policymakers have been implementing measures to support the currency."
The material has been provided by InstaForex Company - www.instaforex.com
Under the leadership of Governor Perry Warjiyo, Bank Indonesia reduced the benchmark rate by 25 basis points to 5.75 percent on Wednesday, contrary to economists' expectations of a rate hold. This adjustment marks the first rate cut since September 2024, positioning the BI rate at its lowest since September 2023. Correspondingly, the deposit facility and lending rates were also reduced to 5.00 percent and 6.50 percent, respectively.
"This decision aligns with the projected low inflation for 2025 and 2026, which remains within the target range of 2.5±1%. This facilitates the stabilization of the Rupiah exchange rate according to fundamentals, aiming to control inflation and support economic growth," stated the central bank.
The central bank revised its growth forecast for the year, reflecting diminished demand for Indonesian exports, weaker household consumption, and reduced investment. The bank anticipates economic growth in 2024 to be slightly under the midpoint of the 4.7 - 5.5 percent range. This year's growth is expected to stay within this range, though lower than the previous forecast of 4.8-5.6 percent.
Inflation remained within the target range of 2.5±1 percent in 2024 and is projected to maintain similar levels this year. Headline inflation saw a minor increase in December, reaching 1.57 percent, up from a three-year low of 1.55 percent in November.
An economist from Capital Economics described the rate cut as a "major surprise." "Given the recent Rupiah weakening, which has depreciated nearly 7 percent against the US dollar since late September due to a robust US economy and uncertainties surrounding Trump's economic policies, we had expected rates to remain unchanged," commented Leather. "Governor Warjiyo provided no rationale for the abrupt policy shift, a move that seems particularly puzzling as policymakers have been implementing measures to support the currency."
The material has been provided by InstaForex Company - www.instaforex.com