High Interest Rate Era Not Over Yet, Here is BI Acting Governor Destry Damayanti's Strategy

Global economic uncertainty remains high, even with the U.S. Federal Reserve's decision to hold its benchmark interest rate, according to Acting Governor of Bank Indonesia (BI) Destry Damayanti. She warned that the Fed's continued hawkish stance suggests the world may face a prolonged period of high interest rates, a situation known as 'higher for longer'.

This outlook presents significant challenges for developing economies, including Indonesia, as it could impact capital flows, exchange rates, and the stability of domestic financial markets. Damayanti noted that the Fed's cautious approach signals ongoing economic vigilance. "The statement from the Fed shows they are still very careful about the economic conditions, even though they decided to hold interest rates. This means the world will still face a higher for longer situation," Damayanti said during a virtual Media Editors Gathering.

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The statement from the Fed shows they are still very careful about the economic conditions, even though they decided to hold interest rates. This means the world will still face a higher for longer situation.

In response, Bank Indonesia has maintained its own benchmark interest rate, the BI Rate, at 5.75%. This policy aims to safeguard the stability of the rupiah's exchange rate and ensure inflation remains under control amidst global uncertainty. Damayanti highlighted the primary challenge as balancing rupiah stability with managing inflationary pressures, particularly in food prices which are still above 5%, while core inflation is considered contained.

To manage these conditions, BI is optimizing its monetary instruments, including adjusting yields on instruments like Bank Indonesia Rupiah Securities (SRBI). These efforts have reportedly attracted foreign capital, with approximately $10 billion flowing into domestic government bonds and SRBI as of early this week, strengthening foreign exchange reserves and supporting financial market stability. Concurrently, BI is pursuing an accommodative macroprudential policy to foster economic growth, offering liquidity incentives to banks that channel credit to priority sectors, including micro, small, and medium enterprises (MSMEs). Damayanti also confirmed that BI's policy direction remains unchanged following the resignation of Governor Perry Warjiyo, with her duties as acting governor continuing until a permanent successor is appointed.

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We will remain focused on maintaining the stability of the rupiah and inflation. All instruments available to Bank Indonesia will be optimized to maintain stability while supporting economic growth.