Bank Indonesia holds rates as rupiah weakens

Bank Indonesia (BI) kept its benchmark interest rate unchanged for the second month in a row today (November 20) as it highlighted the need to keep the rupiah stable amid rising geopolitical uncertainty.

The governing board decided to keep the benchmark rate at 6%, the deposit rate at 5.25% and the lending rate at 6.75%.

It had unexpectedly cut its three key rates by 25 basis points in September, the first time it had loosened policy since February 2021.

In a statement, the bank said today’s decision was consistent with its goals of keeping inflation within the target range of 1.5–3.5% in 2024 and 2025, and supporting sustainable economic growth.

BI said its focus now was to help stabilise the rupiah in the face of increasing global geopolitical and economic uncertainty, as well as political developments in the US.

The central bank said it would continue to pay attention to inflation, to movements in the value of the rupiah and to other data when examining the room for further rate cuts.

“The room for rate cuts that we previously saw as wide does seem narrower now,” the bank’s governor Perry Warjiyo said in a press conference following the board meeting.

He added that Bank Indonesia was monitoring US president-elect Donald Trump’s plans for higher tariffs and spending.

Twenty-five of the 34 analysts polled by Reuters between November 11 and 18 had expected the bank to hold rates. The other nine expected a 25bp cut.

Bank Indonesia said it expected the US to pursue a more expansive fiscal policy and a domestic-oriented economic strategy, including higher trade tariffs and strict immigration policies.

It warned that these developments could slow global growth and fuel global inflation again.

The bank added that future rate cuts by the US Federal Reserve might be more limited than previously expected.

BI has slashed its forecast to only 75bp of cuts by the Fed throughout 2025. It had previously forecast that the US central bank would reduce rates by as much as 125bp.

It said that political changes in the US had strengthened the dollar against various currencies, including the rupiah, and prompted global investors to move their portfolio allocations back to the US.

The rupiah has lost more than 4% of its value against the dollar since September. BI acknowledged on November 15 that it had intervened to support the currency. The bank said it would keep intervening in the spot, domestic non-deliverable forwards and bond markets to stabilise the rupiah. It added that it would keep offering its high-yield rupiah securities, known as SRBI, to attract inflows and support the currency.

In a note, Gareth Leather, senior Asia economist at Capital Economics, said he believed the bank would only resume its easing cycle when it had more confidence that the currency would stabilise. The firm expects BI to deliver its next rate cut in the second half of next year.

Year-on-year headline inflation in Indonesia was 1.71% in October, down from 1.84% the previous month. Core inflation, which excludes government-controlled prices and volatile food prices, rose from 2.09% to 2.21% over the same period.

The economy grew 4.95% year on year in the third quarter, supported by increased household consumption and investment. The central bank has maintained its forecast of 4.7–5.5% growth in 2024.