# Indonesia: Potential Interest Rate Reduction This December

- Link: https://www.thailand-business-news.com/economics/160874-indonesia-potential-interest-rate-reduction-this-december
- Published: 2024-09-10T05:02:00+07:00
- Author: News Desk

**Key View**

 * We hold on to our view that Bank Indonesia will only cut once to 6.00% this year.
 * BI governor still sounded more hawkish than expected despite the conditions for
   an early cut being met. This is an indication that the Bank will likely want 
   to see a more sustained rally in the rupiah before making its move.
 * More room for easing will open up by year’s end after President Prabowo assumes
   office in October and the US Federal Reserve cuts its benchmark rate the second
   time. However, risks are skewed towards an earlier move if the rupiah strengthens
   more convincingly against the dollar during that time. 

Bank Indonesia (BI) left its benchmark policy rate unchanged at 6.25% during its
August meeting, which comes as no surprise to us. Indeed, it is our long-held view
that BI will not consider cuts ahead of the US Federal reserve (Fed) as the stability
of the rupiah remains at the fore of the Bank’s concerns. We were right in this 
regard. The conditions to embark on policy easing have already been met, yet policymakers
remain reluctant to act. Consequently, our projections for a 25 basis point (bps)
cut by the end of 2024, followed by an additional 100 bps reduction in 2025, remain
unchanged.

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In December, Indonesia’s central bank may consider cutting interest rates as part
of its broader strategy to stimulate the economy. The Bank Indonesia (BI) has been
monitoring various economic indicators, including inflation rates and economic growth,
to determine the opportune moment for such a move. The potential rate cut aims to
encourage borrowing and investment, particularly in sectors that have been impacted
by the global economic slowdown and domestic challenges, such as post-pandemic recovery.

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Analysts suggest that a reduction in interest rates could provide much-needed relief
to businesses and consumers in Indonesia. Lower borrowing costs may lead to increased
spending and investment, bolstering economic activity and helping to sustain growth.
This situation is critical, especially as the country navigates through uncertainties
in global trade and fluctuating commodity prices.

Should the BI decide to proceed with the interest rate cut, it would reflect a proactive
approach to fostering an environment conducive to recovery and growth. With the 
right economic policies in place, Indonesia could position itself for a more resilient
future, enabling it to better withstand external shocks.
[Read More](https://www.fitchsolutions.com/bmi/country-risk/indonesia-interest-rate-cut-table-december-05-09-2024)