Indonesia Cuts Key Interest Rates Unexpectedly

Indonesia’s central bank lowered its key interest rates unexpectedly on Wednesday to spur economic growth as inflation remains well within the target range amid strengthening rupiah exchange rate.

The Board of Governors of Bank Indonesia, headed by Perry Warjiyo decided to cut the seven-day reverse repo rate by 25 basis points to 6.00 percent.

This was the first reduction since February 2021. The bank was widely expected to keep its key rates unchanged today.

The deposit facility rate and the lending facility rate were lowered to 5.25 percent and 6.75 percent, respectively.

The bank said it will continue to monitor the room for lowering the policy rates further, considering the low inflation, the stable and strengthening rupiah and the need to boost economic growth.

The bank expects the economy to grow in the range of 4.7 percent to 5.5 percent this year. Going forward, more measures are needed to encourage growth, BI said.

Further, inflation is projected to remain within the target range of 1.5 to 3.5 percent this year and next.

The central bank has nothing to worry about on the inflation front, Capital Economics’ economist Gareth Leather said.

Moreover, with the Fed likely to start cutting interest rates later today and with further reductions likely over the coming year, the rupiah is expected to continue to appreciate against the US dollar, the economist added. Leather forecasts the policy rate to finish 2024 at 5.5 percent.