Bank Indonesias (BI) decision to cut the benchmark interest rate by 25 basis points to 5.75 percent has raised concerns among economists about its impact on the exchange rate of the rupiah.

Although the move aims to stimulate economic growth through lower credit interest rates, this decision also risks increasing pressure on the rupiah, which has already been weakening against the US dollar.

The risk is that pressure on the rupiah will intensify, and we are concerned it could reach Rp 16,500 per US dollar, said Teuku Riefky, an economist from the Faculty of Economics and Business (LPEM FEB) at the University of Indonesia, on Thursday.

This monetary easing measure could trigger further depreciation of the rupiah, potentially reaching Rp 16,500 per US dollar. The weakening of the rupiah could lead to imported inflation, potentially raising the prices of imported goods and eroding peoples purchasing power.

According to Bloomberg data, the rupiah stood at Rp 16,374 per US dollar, weakening by 49 points (0.3 percent).

On the other hand, although this move could support economic growth by lowering credit interest rates, Riefky said that Bank Indonesias primary mandate should not focus on economic growth but rather on exchange rate stability and inflation control.

Given the pressure on the rupiahs exchange rate, BI must carefully consider the impact of this decision on overall economic stability.

Earlier, Bank Indonesia decided to lower the BI rate by 25 basis points to 5.75 percent during its monthly meeting held on Jan. 14-15, 2025. Bank Indonesia had kept the benchmark interest rate at 6 percent for four months.

Source : Jakarta Globe.id

Jan 18, 2024