Bank Indonesia (BI) will maintain its benchmark interest rate at its current level of 6% until 2024 barring any major changes in global dynamics, BI Governor Perry Warjiyo said on Wednesday, December 29, signaling that the central bank will not continue its rate hiking cycle. 

At an annual gathering of financial executives and government officials hosted by BI, Mr. Warjiyo said its benchmark rate should be sufficient to keep domestic inflation within its target range of 1.5% to 3.5% 2024 and 2025.  

“In the monetary policy for 2024, we will continue to strengthen for stability. Especially to ensure control over inflation within the target of 2.5% plus minus 1% in 2024-2025,” Mr. Warjiyo said, as quoted by Katadata. 

BI last raised interest rates in October 2023 after keeping rates 5.75% for several consecutive months. BI has hiked interest rates by a total of 250 basis points (bps) since August 2022, with its latest rate hike made in response to a plunge in the rupiah's exchange rate amid capital outflows linked to the U.S. monetary tightening. 

He expected the rupiah to become more stable in 2024, with the Federal Reserve expected to cut U.S. rates by 50 bps in the second half of next year. 

With the monetary policy guidance, Mr. Warjiyo put Indonesia's GDP growth outlook within a range of 4.7%-5.5% for 2024 and 4.8%-5.6% for 2025, and between 5.3% and 6.1% in the medium term, by 2028. These figures were stronger than BI's 2023 growth outlook of 4.5%-5.3%. 

Next year, higher civil servant salaries, spending for elections on Feb.14, the construction of Indonesia's $32 billion new capital city project, and exports of processed natural resources will provide tailwind to growth, he said. 

Still, headwinds are expected from weakening global economic growth. 

"Geopolitics is affecting geo-economy. As a result, global economic prospects will weaken in 2024 before improving in 2025," he said. 

Speaking at the same event, President Joko Widodo warned Indonesian financial executives of the unpredictability of wars happening in other parts of the world and their impact on domestic economy. 

Mr. Widodo urged banks to prioritize lending over putting any excess liquidity into government bonds or BI's securities. 

Source: Katadata, Reuters