In Line With Expectations, Bank Indonesia Cut Its Key Interest Rate in September 2024
As expected, Bank Indonesia cut the benchmark interest rate at its monetary policy meeting on 17-18 September 2024. The BI rate was cut by 25 basis points (bps) to 6.00 percent, while also lowering the deposit facility and lending facility rates by 25 bps to 5.25 percent and 6.75 percent, respectively.
Bank Indonesia’s latest policy meeting ended shortly before the US Federal Reserve confirmed an even bigger rate cut of 50 bps. And so, one could argue that Indonesian central bankers were still a bit cautious. Yes, markets were quite certain that the Fed would cut its rate in September 2024, but there was no 100 percent guarantee, while it was also a question mark whether the Fed would cut its rate by 25 or 50 bps.
And so, the 0.25 percentage point rate cut is a somewhat cautious step. However, as we have been seeing in late-September 2024 and early October 2024, the external environment is very uncertain and volatile (as violence in the Middle East can easily –and quickly– escalate), and so this cautious Bank Indonesia move seems a wise one as it can, if circumstances allow it, opt for another 25 bps rate cut in October 2024, although we assume that Bank Indonesia might want to wait first for developments in the Middle East and perhaps for the Federal Reserve meeting on 6-7 November 2024 before making another adjustment.
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