BI Holds Benchmark Rate at 5.75 Percent, Economist: Best Option

Senior economist, banking practitioner, and Associate Faculty at LPPI, Ryan Kiryanto, has commented on Bank Indonesia’s decision to hold its benchmark rate, the BI Rate, at 5.75 percent. “Indeed, that is the best available option, rational as well as preemptive and anticipatory, for BI to keep the BI Rate at 5.75 percent because external sentiment remains high even though the rupiah exchange rate has gradually improved but is still hovering around Rp17,800 per US dollar,” Ryan said, quoted from a written statement received on Wednesday (19/8).

This decision, Ryan continued, remains aligned with the monetary policy stance of central banks in advanced economies (BoE, BoJ, ECB, and the Fed), which at their most recent meetings also held their respective benchmark rates. In addition, Ryan added that the effects of the aggressive BI Rate hike last June are not yet considered optimal in stabilising the rupiah, so more time is needed, possibly until the end of this year, to maintain the current BI Rate level.

“Positive market perception has also not fully recovered in response to domestic developments following demonstrations by some elements of the nation and polemics over various domestic legal and political issues,” Ryan explained.

Ryan assessed that BI’s decision is consistent with its policy guidance to maintain rupiah exchange rate stability so that it does not fluctuate too sharply, thereby providing certainty, security, and comfort for economic and business actors and controlling annual inflation towards the target of 2.5 percent plus or minus 1 in 2026.

“In essence, BI should not rush to ease or lower the BI Rate when external and domestic conditions are not yet conducive. So, a higher-for-longer stance for the BI Rate will still be faced at least until the end of 2026,” he concluded.