- BI kept its benchmark interest rate at 4.75% during the December meeting amid a hawkish Fed cut, increased Rupiah volatility and improvements in several real sector indicators.
- The 50 bps shift in KLM incentives from the lending channel to the interest rate channel may facilitate a quicker transmission to M2 growth.
- Introducing interest on excess reserves increases banks' flexibility in asset choices, providing an additional buffer for profits that is expected to be transmitted into better credit growth.
- BI may continue to cut rates next year, but the transmission to credit growth remains uncertain due to concerns about Rupiah stability and external risks.
