BI’s Headroom for Rate Cuts Grows Narrower

The window narrows for loosening key rate as several factors force Bank Indonesia (BI) to maintain rates higher for longer.

Editorial Team

22 Feb 2024 - 17.22
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BI’s Headroom for Rate Cuts Grows Narrower

Bisnis, JAKARTA - The window narrows for loosening the benchmark interest rate as two major factors force Bank Indonesia (BI) to maintain rates higher for longer.

First is the rising inflation the US. The Fed has signaled to postpone its rate cuts, initially planned for the half semester of 2024. Second is the looming domestic inflation, affected by the increasing prices of strategic commodities, especially rice, and the arrival of Ramadan, which historically increases demand.

The government remains wary of inflation surges and price hikes at the beginning of the year, thus dampening consumer purchasing power, which in turn also reduces core inflation, the main benchmark for BI to adjust the key rate.

Reflecting on these conditions, BI follows the Fed's lead in postponing rate cuts. On the other hand, both BI and the government are advised to make various efforts to create stability, such as fiscal support to boost consumer purchasing power and macroprudential incentives to increase credit.

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© Copyright 2024, Hak Cipta Dilindungi Undang - Undang.