Bank Indonesia Holds Benchmark Interest Rate Steady, Lending and Deposit Rates Decrease

Source: Dimas Ardian/Bloomberg

During the Governor’s Board Meeting (RDG) held on May 24-25, 2023, Bank Indonesia (BI) announced its decision to maintain the benchmark interest rate at the level of 5.75 percent. This decision marks the fourth consecutive time that Bank Indonesia has chosen to keep the benchmark interest rate unchanged since the beginning of this year. As a result, the interest rates for bank loans and deposits have started to decrease, reflecting the impact of the decision.

Governor Perry Warjiyo emphasized the consistency of this decision with the monetary policy stance adopted by Bank Indonesia. The aim is to ensure that the core inflation remains under control within the target range of 3.0±1 percent for the remaining period of 2023.

In the RDG, Governor Warjiyo stated, “Based on the assessment results, Bank Indonesia’s RDG on May 24 and 25, 2023, decided to maintain the BI 7-Day Reverse Repo Rate at 5.75 percent.”

This decision carries significance as it represents the fourth consecutive time that Bank Indonesia has opted for this course of action. It is worth noting that during the period from mid-last year to early this year, the benchmark interest rate had been experiencing an upward trend. However, with the decision to hold it steady, there is now a shift towards stability.

The impact of this decision can be observed in the declining trend of bank lending and deposit interest rates. In April 2023, the one-month deposit interest rate stood at 4.09 percent, reflecting a decrease compared to the rate of 4.1 percent in March 2023. Similarly, the lending interest rate in April 2023 reached 9.37 percent, showing a slight decrease from the previous month’s rate of 9.38 percent.

Various factors have influenced the downward trajectory of Bank Indonesia’s benchmark interest rate. One significant factor is the projection that The Federal Reserve (The Fed) will halt its trend of interest rate hikes due to a slowdown in inflation. This projection contributes to the overall stance of monetary policies in several countries.

Moreover, the decision to maintain the benchmark interest rate aligns with the positive outlook for Indonesia’s balance of payments compared to the previous year.

There have been notable improvements, particularly in the capital account balance, specifically in portfolio capital flows directed towards Indonesia. These developments contribute to the overall assessment of the economic landscape and guide the decision-making process.

In conclusion, Bank Indonesia’s decision to retain the benchmark interest rate at 5.75 percent reflects its commitment to maintaining stability and supporting economic growth. The impact can be seen in the declining trends of bank lending and deposit interest rates. Furthermore, the decision is influenced by factors such as projections of The Fed’s actions and positive developments in Indonesia’s balance of payments.