In January, Bank Indonesia surprised investors by
cutting the BI7DRR by 25 basis points to 5.75%. The unexpected move caught markets off guard, as most analysts had anticipated a pause in rate adjustments
BI justified the cut by citing the need to support domestic economic growth amid a favorable inflation outlook and stable financial markets. The decision reflects BI's confidence in Indonesia's economic resilience and its ability to navigate global uncertainties.
A lower BI rate is generally positive for the equity market because it reduces borrowing costs for businesses and consumers, encouraging spending and investment.
BI Rate
Lower rates make fixed-income investments like bonds less attractive,
prompting investors to seek higher returns in equities. Sectors such as banking, property, and consumer goods tend to benefit the most from lower interest rates due to increased credit demand and consumer spending.
Although this policy aims to boost economic growth, there are risks to the
stability of the rupiah exchange rate.
Following the announcement of the rate cut, the rupiah weakened to its lowest level in six months, reaching
IDR 16,383/USD.
With lower interest rates, the rupiah becomes
less attractive to foreign investors. Moreover, the global market's current uncertainties have added further pressure on the exchange rate.
It seems that BI has deliberately chosen to "
sacrifice" the rupiah to keep the economy running.
On the other hand, the stock market reacted positively to this policy. JCI gained
1.8% following the announcement of the rate cut.
Going forward, the stock market will likely be driven more by
domestic liquidity and sentiment. With the rupiah being less appealing to foreign investors, their participation might remain subdued.
However, the decline in global bond yields and the confirmation that Trump will run again for presidency have provided BI with room to maneuver.
In essence, we see this is a
BI's gamble to prioritizing economic growth now, despite the risks to the exchange rate.
This approach has kept
domestic markets optimistic.
After all, the equity market still has the momentum to grow, as long as the local investor continues to have confidence and spending remains strong.
.png)
Comments