Bank Indonesia maintains stable interest rates for 2024-2025

The Board of Governors of Bank Indonesia (BI), meeting on May 21 and 22, 2024, decided to maintain the BI interest rate at 6.25%, as well as the Deposit Facility (DF) interest rate at 5.50% and the interest rate of the Loan Facility (LF) at 7.00%. This decision reflects the favorable stance towards the stability of the central bank’s monetary policy, aimed at preventively managing inflation within the target band of 2.5%±1% for 2024 and 2025. By maintaining these rates, the Bank Indonesia aims to ensure the stability of foreign capital inflows and the stability of the rupiah, while supporting sustainable economic growth through various macroprudential policies and the payment system.

Favorable approach to stability and economic measures

Bank Indonesia’s approach combines monetary, macroprudential and payments system policies to address persistent global financial market uncertainty. A key strategy is to improve market-friendly monetary operations to make monetary policy more effective. This includes:

Strengthen the interest rate structure of the rupee money market to attract portfolio flows, thereby supporting the stability of the rupee.

Intervene in the foreign exchange market, focusing on spot and forward operations without delivery in the national market (DNDF), as well as in public securities (SBN) in the secondary market.
Maintain adequate liquidity in the banking sector through competitive SBN term repo operations and currency swaps.

In addition, the BI continues to promote transparency in the preferential lending rate (PLR) policy, focusing on sector-specific interest rates. The central bank is also collaborating with the payment systems sector to increase the adoption of digital payment systems, particularly QRIS (Quick Response Code Indonesian Standard), across all MSME categories.

Inflation control and coordination with the Government

The BI’s policy coordination with the Government remains strong, focusing on mitigating risks arising from global uncertainties and controlling inflation. The central bank supports the National Movement for the Control of Food Inflation (GNPIP) and collaborates with the inflation control teams of the central and regional governments (TPIP and TPID). This synergy is crucial to maintain macroeconomic stability and sustain economic growth.

Resilience amid global uncertainty

Despite high uncertainty in global financial markets, the Indonesian economy has proven resilient. The country’s economic growth in the first quarter of 2024 was 5.11% year-on-year, driven by strong domestic demand, improved private and public consumption, and ongoing infrastructure investments. However, exports have moderated due to weak demand from major trading partners.

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The balance of payments also remains healthy, supported by a trade surplus and a positive trend in portfolio investments. As of April 2024, Indonesia’s foreign exchange reserves amounted to US$136.2 billion, equivalent to 6.1 months of imports, indicating strong external resilience. Rupiah stability and monetary policy mix

The rupee has appreciated in response to the IB’s monetary policy mix, which attracted significant foreign capital inflows, particularly in SBN and SRBI instruments. In May 2024, the rupee appreciated by 1.66% after losing 2. 49% in April. The central bank’s proactive measures have ensured currency stability despite global uncertainties.

Stability of the banking and financial system

The banking sector continues to show solid resilience, with ample liquidity, low credit risk and strong capital capacity. In April 2024, credit growth was high at 13.09% year-on-year, driven by loans to various economic sectors. The capital adequacy ratio (RAC) of the banking sector was also strong at 25.96%.

Despite high uncertainty in global financial markets, the Indonesian economy has proven resilient

Payment system transactions have seen strong growth, with BI-RTGS transactions increasing year-on-year by 18.65% in April 2024. Digital banking transactions and e-money transactions also saw significant increases, reflecting the growing adoption of digital payment systems.

Future perspectives and policies

Bank Indonesia remains committed to supporting sustainable economic growth by maintaining its pro-stability monetary policy and improving policy coordination with the Government. The central bank will continue to use its various pro-market monetary instruments to attract capital inflows, support the rupee and ensure that inflation remains within the target corridor.

In conclusion, Bank Indonesia’s decision to maintain the BI rate at 6.25% and other key rates underlines its commitment to stability amid global uncertainty. Through a comprehensive mix of monetary, macroprudential and payment system policies, Bank Indonesia aims to foster sustainable economic growth, ensure the stability of the rupiah and keep inflation under control.