REPUBLIKA.CO.ID, JAKARTA - Bank Permata Chief Economist Josua Pardede expects Bank Indonesia (BI) to lower the Bi-rate next year. This policy is considered necessary to stabilize the rupiah exchange rate in the face of increased market volatility under the current United States administration.

“Amid the Fed's (Federal Reserve) strategy of gradual interest rate reduction, we expect Bank Indonesia to adopt a measured monetary easing approach throughout 2025,” Josua said on Thursday (20/12/2024).

He expects BI to lower its benchmark interest rate by 25 basis points (bps) leaving the Bi-rate at 5.75 percent by the end of 2025. “In conjunction with the updated policy rate projections, we have adjusted the 10-year SBN yield forecast, raising the estimate from around 6.66 per cent in 2024 and 6.45 per cent in 2025 to a range of 6.95-7.15 per cent for 2024 and 6.75-7.05 per cent for 2025,” he said.

The Federal Reserve (Fed) cut interest rates 25 bps recently. In addition, Fed Chief Jerome Powell gave a very hawkish statement to the outlook for interest rates by indicating there would only be a 50 bps cut next year, down 75-100 bps from what was expected in the previous quarter.

The chance of a pause in rate cuts for January 2025 also rose to 88 per cent. The Fed gave the statement based on projections for higher U.S. economic growth of 2 percent to 2.5 percent. For 2025, to 2.1 per cent from the previous estimate of 2 per cent, and while maintaining the 2 per cent projection for 2026.

In addition, core Personal Consumption Expenditure (PCE) inflation, which is expected to range from 2.4 to 2.8 percent, is still above the 2 percent target. Then, unemployment projections were lowered to 4.2 percent from 4.4 percent for 2024 and 4.3 percent from 4.4 percent for 2025, while the 2026 projection remained steady at 4.3 percent.

In the domestic sphere, Bank Indonesia (BI) just decided on Wednesday (18/12/2024) to keep its benchmark interest rate at 6.00 percent on the grounds that uncertainty is increasing in global financial markets. It stems from Donald Trump's plan as US President-elect to implement a broader and larger tariff policy than previously anticipated.

However, BI said it still has room to cut its forward benchmark interest rate if uncertainty begins to ease.

“Emerging uncertainties in 2025, coupled with the Fed's cautious monetary policy approach, are expected to reduce the attractiveness of Indonesian portfolio assets, thereby limiting capital inflows from both direct and portfolio investments. Weaker demand in the financial sector, combined with a possible widening of the current account deficit amid the risk of a global slowdown, is expected to put additional pressure on the rupiah,” Josua added.

Therefore, it revised the forecast of the rupiah exchange rate for 2024 to Rp 15,900-Rp16,200 per US dollar from the previous Rp 15,600-16 thousand per US dollar. For 2025, it will be Rp 15,600-16 thousand per US dollar from the previous Rp 15,400-15,800 per US dollar.

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