JAKARTA :Indonesia’s central bank unexpectedly held its key interest rate steady on Wednesday, surprising markets with a pause in its easing cycle after cutting rates at its past three meetings.
Bank Indonesia kept the benchmark 7-day reverse repurchase rate at 4.75 per cent. Of 28 economists polled by Reuters, 21 had expected a 25 basis points cut, with the rest predicting no change.
The overnight deposit and lending rates were also kept at 3.75 per cent and 5.50 per cent, respectively.
Governor Perry Warjiyo told an online press conference that while domestic economic conditions were good, growth needed to be pushed to reach its capacity.
He said growth was expected to be slightly above the mid-point of BI’s 4.6 per cent to 5.4 per cent forecast range for 2025, and would be stronger next year.
The decision to hold steady was consistent with the central bank’s efforts to maintain rupiah stability and to have time to see the impact of earlier rate cuts, while also working to improve monetary policy transmission.
BI began cutting rates in September 2024, and has delivered 6 rate cuts totalling 150 basis points. It has paused its easing cycle at some meetings over the past year due to weakness in the rupiah currency.
The rupiah, which can swing sharply on shifts in global market sentiment, has been relatively stable around 16,600 per dollar this month.
It is down by 3 per cent against the dollar this year to be one of the weakest emerging Asian currencies, with some investors flagging concerns over fiscal management and central bank independence.
BI’s easing cycle has come as President Prabowo Subianto seeks to lift economic growth to 8 per cent during his term, from around 5 per cent in the post-pandemic era. For 2026, he has set a target of 5.4 per cent.
Prabowo has recently launched two economic stimulus packages worth a total of $2.8 billion, which include cash and food handouts, temporary jobs in construction and a paid internship scheme to boost near-term growth.
Finance Minister Purbaya Yudhi Sadewa has also moved $12 billion of government funds from the central bank to state banks, and directed that the liquidity be used to increase lending.
Purbaya, who became finance chief last month after the abrupt sacking of respected long-time minister Sri Mulyani Indrawati, has said BI should be able to lower its benchmark rate to 3.5 per cent if inflation remains stable at 2.5 per cent.
BI targets inflation within a 1.5 per cent to 3.5 per cent range. The September annual inflation rate was 2.65 per cent.
($1 = 16,570 rupiah)
