Respons Kondisi Ekonomi, Bank Indonesia Turunkan Suku Bunga

KOMPASTV

23 Sept 202418:58

Summary

TLDRIn a discussion on Kompas Business, Bank Indonesia's September 2024 decision to lower the BI rate by 25 basis points to 6% is highlighted. The decision is based on controlled inflation forecasts for 2024-2025 and decreased global monetary policy uncertainty. Juli Budi Winantia, Director of Monetary and Economic Policy, explains how the U.S. Federal Reserve's rate cuts and slowing U.S. economic growth influenced the move. Additionally, Indonesia’s strong economic fundamentals and rising foreign capital inflows have supported the Rupiah's strength. The discussion covers economic growth forecasts and efforts to sustain stability while encouraging further growth.

Takeaways

📉 The Bank of Indonesia (BI) reduced the BI rate by 25 basis points to 6%, based on controlled inflation expectations for 2024 and 2025.
🌍 Global monetary policy uncertainty has eased, with reduced inflationary pressures globally.
💸 The Federal Reserve recently reduced its Federal Funds Rate (FFR) by 50 basis points, aligning with BI's earlier actions and expectations of faster and larger cuts.
📊 Indicators in the U.S. show economic slowdown, declining inflation, and rising unemployment, supporting the expectation of faster FFR reductions.
📉 The yield curve in the U.S. has normalized, with short-term yields decreasing more than long-term ones, indicating less market uncertainty.
🌍 Foreign investment in emerging markets, including Indonesia, is increasing, supported by declining U.S. yields.
💰 Foreign portfolio investments in Indonesia reached $11.4 billion by September 2024, contributing to the strengthening of the Indonesian rupiah.
💪 The rupiah has strengthened by 1.7% since the end of August 2024, outperforming currencies of neighboring countries like India and Korea.
🏦 BI's focus is on maintaining stable and low inflation, projected to remain within the 2.5% ±1% range for both 2024 and 2025.
💵 BI aims to stimulate credit growth and economic expansion through lower interest rates, while also ensuring stability in exchange rates and supporting long-term growth.

Q & A

What decision did Bank Indonesia make in the meeting on September 17-18, 2024?
-Bank Indonesia decided to lower the BI rate by 25 basis points to 6%, reflecting a stable inflation outlook for 2024 and 2025.
What are the inflation targets mentioned for 2024 and 2025?
-The inflation targets for 2024 and 2025 are set within a range of 2.5% plus or minus 1%, indicating controlled inflation levels.
How did global inflation and the US monetary policy impact Bank Indonesia’s decision?
-Bank Indonesia's decision was influenced by easing global inflation pressures and reduced uncertainty around US monetary policy, as the Federal Reserve's actions became clearer.
Why did Bank Indonesia expect a faster and larger reduction in the Fed Fund Rate (FFR)?
-Bank Indonesia anticipated a faster and larger reduction in the FFR due to the slowing economic growth, declining inflation, and rising unemployment in the United States.
What impact has the Fed's monetary policy had on global financial markets?
-The declining yields on US government bonds, particularly the two-year bonds, and the inversion of the yield curve correcting itself have made emerging markets, including Indonesia, more attractive for foreign investment.
What factors have contributed to the recent strengthening of the Indonesian Rupiah?
-The Rupiah has strengthened due to increased foreign capital inflows, particularly in portfolio investments across various financial instruments, and positive domestic economic fundamentals.
What is the projected growth rate for Indonesia’s economy in 2024 according to Bank Indonesia?
-Bank Indonesia projects the Indonesian economy to grow between 4.7% and 5.5% in 2024, driven by investment, household consumption, non-oil exports, and government spending.
How does Bank Indonesia plan to support economic growth through its monetary policy?
-Bank Indonesia plans to support economic growth by adjusting its monetary policy to not only focus on stability but also on promoting growth, such as by lowering the BI rate to encourage bank lending and stimulate economic activity.
What measures is Bank Indonesia taking to ensure the stability of the Rupiah?
-Bank Indonesia is employing several strategies to maintain Rupiah stability, including interventions in the foreign exchange and bond markets, optimizing monetary instruments, and maintaining economic fundamentals.
How is Bank Indonesia coordinating with the government to drive economic growth?
-Bank Indonesia is working closely with the government by aligning its macroprudential, payment systems, and monetary policies to support economic growth, such as by ensuring the BI rate reduction is aligned with government objectives.

Outlines

00:00

📉 Bank Indonesia Cuts BI Rate Amid Global Economic Developments

Bank Indonesia decided to lower the BI rate by 25 basis points to 6% after a two-day meeting from September 17-18, 2024. The decision was based on stable inflation forecasts for 2024 and 2025, as well as reduced uncertainty in global monetary policies, especially as inflationary pressures eased worldwide. Juli Budi Winantia, Director of the Monetary Policy Department at Bank Indonesia, discusses how the U.S. Federal Reserve’s (Fed) recent cut of the Federal Funds Rate (FFR) by 50 basis points aligned with global expectations, impacting financial markets and capital flows. Despite earlier uncertainty around the timing and size of the FFR cut, clearer indicators led Bank Indonesia to anticipate and react accordingly.

05:02

💰 Foreign Capital Inflows Strengthen the Rupiah

Juli Budi Winantia explains that the rupiah’s recent appreciation is linked to increasing foreign capital inflows. As of late September 2024, foreign investments in Indonesia reached $11.4 billion across domestic financial instruments such as government securities and stocks. These inflows strengthened the rupiah, which rose 1.7% since August 2024. The rupiah’s performance is favorable compared to other regional currencies like those of India and South Korea. Winantia attributes this to both global factors, such as the Fed’s rate cut, and strong domestic economic fundamentals, along with Bank Indonesia's policies to maintain currency stability.

10:03

🏛️ Economic Growth Prospects in Indonesia Remain Strong

Bank Indonesia expects Indonesia’s economic growth to remain robust, with forecasts between 4.7% and 5.5% for 2024. Juli Budi Winantia emphasizes that growth is driven by strong investments, particularly in infrastructure and strategic national projects, stable household consumption, and solid exports, especially non-oil exports. Additionally, increased government spending toward the end of the year will further support domestic demand. Economic indicators, such as consumer confidence, retail sales, and capital goods imports, show positive trends, suggesting that Indonesia's economy will continue to grow steadily.

15:04

🏦 Bank Indonesia's Coordinated Efforts to Sustain Economic Growth

In September 2024, Bank Indonesia reduced the BI rate by 25 basis points, with several key considerations in mind: clarity around the Fed’s rate cuts, a stable and appreciating rupiah, low and stable inflation, and a desire to support economic growth. Bank Indonesia now integrates monetary policy into its broader efforts, aiming for a balance between stability and growth. The central bank encourages commercial banks to follow suit by lowering lending rates to stimulate credit growth. Additionally, Bank Indonesia's commitment to ensuring currency stability is reflected in its active interventions in the foreign exchange and government bond markets.

🔧 Strengthening Policies to Stabilize the Rupiah

To maintain and strengthen the rupiah, Bank Indonesia has implemented various stabilization strategies, including foreign exchange interventions in both spot and forward markets, along with secondary market purchases of government securities. These efforts have attracted foreign capital, with foreign holdings in domestic securities (SRBI) reaching IDR 246 trillion by mid-September 2024. Additionally, the central bank has optimized monetary instruments to ensure market confidence. Through these coordinated interventions, Bank Indonesia aims to keep the rupiah stable and inflation within target ranges.

🤝 Coordination Between Bank Indonesia and Government for Economic Growth

Bank Indonesia’s multi-faceted approach to boosting economic growth includes both macroprudential and monetary policy tools. By cutting the BI rate by 25 basis points, the central bank hopes to stimulate the economy further. Looking forward, Bank Indonesia will continue to assess conditions for additional rate cuts, while keeping inflation and exchange rates in check. The central bank’s policies complement government efforts to ensure sustainable economic growth, particularly through investment and fiscal support. Bank Indonesia remains vigilant of both global and domestic conditions, ensuring that its policies align with broader economic objectives.

Mindmap

Keywords

💡BI Rate

The BI Rate is the benchmark interest rate set by Bank Indonesia, which is used to guide the country's monetary policy. In the script, Bank Indonesia decided to lower the BI Rate by 25 basis points to 6%. This decision reflects expectations of continued low inflation and aims to support economic growth. Lowering the BI Rate is seen as a way to reduce borrowing costs, making it cheaper for businesses and consumers to access credit.

💡Inflation

Inflation refers to the rate at which the general level of prices for goods and services rises, leading to a decrease in purchasing power. In the context of the script, Bank Indonesia's decision to lower the BI Rate is consistent with the low inflation forecast for 2024 and 2025, which is expected to remain within the target range of 2.5% ± 1%. The controlled inflation indicates stability in domestic economic conditions.

💡Fed Funds Rate (FFR)

The Fed Funds Rate (FFR) is the interest rate at which banks lend reserve balances to other banks in the United States, and it is set by the Federal Reserve. The script mentions that the FFR was lowered by 50 basis points, which was a larger-than-expected move. This change influenced Bank Indonesia's earlier decision to lower the BI Rate. A lower FFR can decrease global financial market uncertainty and impact capital flows to emerging markets like Indonesia.

💡Global Monetary Policy

Global monetary policy involves actions taken by central banks around the world to influence their economies, primarily through interest rate changes and liquidity management. In the script, Bank Indonesia highlights how global monetary policy, particularly the FFR adjustment, affects the domestic economy. As uncertainty in advanced economies' policies reduces, it gives Bank Indonesia more clarity in setting its own policy directions.

💡Foreign Capital Inflows

Foreign capital inflows refer to the investment of capital from foreign entities into a country's financial markets. In the script, Bank Indonesia notes an increase in foreign portfolio investments, which has strengthened the value of the Indonesian Rupiah. These inflows are seen in various financial instruments like government bonds and stocks, reflecting investor confidence in Indonesia’s economic stability and making the Rupiah more attractive.

💡Rupiah Exchange Rate

The Rupiah Exchange Rate refers to the value of the Indonesian currency (IDR) relative to other global currencies. In the script, the Rupiah has been strengthening, reaching around 15,150-15,200 IDR/USD as of September 23rd, 2024. This appreciation is attributed to increased foreign capital inflows and stable domestic economic fundamentals. A stronger Rupiah can make imports cheaper but may impact the competitiveness of exports.

💡Economic Growth

Economic growth measures the increase in a country's economic output, typically indicated by GDP growth. In the script, Bank Indonesia projects Indonesia's economy to grow between 4.7% and 5.5% for 2024. To achieve this, factors such as strong domestic consumption, increased investment, and government spending are emphasized. Maintaining and supporting growth is a key focus of Bank Indonesia's monetary policy adjustments.

💡Monetary Policy Transmission

Monetary policy transmission refers to how changes in a central bank’s policy rate affect the broader economy, including lending rates, consumption, and investment. The script describes Bank Indonesia’s expectation that lowering the BI Rate will transmit through to lower bank lending and deposit rates, stimulating borrowing and spending. Effective transmission is crucial for the policy rate cuts to support economic growth.

💡Yield Curve

The yield curve is a graph showing the relationship between interest rates and different maturity dates of government bonds. In the script, it is mentioned that the yield curve in the United States, which was previously inverted (short-term rates higher than long-term rates), has now become positive. This shift is interpreted as a sign of decreased recession fears and aligns with expectations of further interest rate cuts by the Federal Reserve.

💡Monetary Stability

Monetary stability refers to a state of low and stable inflation, stable exchange rates, and smooth functioning of the financial system. In the script, maintaining monetary stability is a key goal for Bank Indonesia, which guides its policy decisions. Stability is seen as necessary for fostering economic growth and ensuring that changes in interest rates do not lead to financial market disruptions or excessive currency volatility.

Highlights

Bank Indonesia lowered the BI rate by 25 basis points to 6% during the September 2024 meeting, aligning with the low inflation outlook for 2024 and 2025.

The decision is consistent with the controlled inflation forecast within the target range of 2.5% ± 1%.

Global monetary policy uncertainty has lessened as global inflationary pressures continue to ease.

Bank Indonesia expected the US Federal Reserve (Fed) to lower the Federal Funds Rate (FFR) by 50 basis points, exceeding earlier expectations.

The US economy is predicted to slow down in the second half of 2024 and into 2025, driving the anticipation of a larger and faster Fed rate cut.

US inflation is also expected to decline, while the unemployment rate has risen, further reinforcing the Fed’s decision to lower rates.

The yield curve in the US, previously inverted, has shifted positively, indicating a normalization in the financial markets.

Foreign capital inflows into emerging markets, including Indonesia, are increasing as US bond yields decline.

Indonesia has seen a significant rise in foreign portfolio investments, totaling USD 11.4 billion by September 20, 2024.

The Rupiah has appreciated by 1.7% since the end of August 2024, reflecting stronger investor confidence.

Bank Indonesia projects continued stable and strengthening of the Rupiah, supported by foreign capital inflows and strong domestic economic fundamentals.

Inflation in Indonesia remains low and stable, within the target range for both 2024 and 2025, further supporting the decision to lower interest rates.

Bank Indonesia's monetary policy is shifting from solely focusing on stability to also supporting economic growth.

The BI rate cut is expected to encourage banks to lower lending and deposit rates, boosting credit growth and economic expansion.

The Indonesian economy is projected to grow within the range of 4.7% to 5.5% in 2024, with household consumption, investments, and government spending as key drivers.