(April 22): Bank Indonesia held its benchmark interest rate for a seventh straight meeting and said it was ready to do more to stabilise the rupiah and inflation outlook from the impact of the Middle East conflict.
The central bank held the BI-Rate at 4.75% on Wednesday, as expected by all 39 economists in a Bloomberg survey, extending a pause in place since October. Governor Perry Warjiyo also vowed to keep intensifying both offshore and onshore intervention to support the currency, which he said should appreciate.
“Bank Indonesia is prepared to implement a further strengthening of monetary policy as needed to maintain the stability of the rupiah exchange rate and keep inflation in 2026 and 2027 within the target range,” Warjiyo said in a briefing in Jakarta.
The Indonesian rupiah, benchmark 10-year government bond yield and stocks held earlier losses after the hold decision.
The conflict in the Middle East is worsening the world economic outlook and narrowing the room for global monetary easing, Warjiyo said in a briefing in Jakarta. He outlined a challenging external environment in which a flight to safety is sending capital to havens, with the rise in US Treasury yields pressuring emerging-market currencies like the rupiah.
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Southeast Asia’s biggest economy has been battered by outflows, as the global energy crunch drives up the cost of government subsidies for fuel and cooking gas, adding to longstanding fiscal concerns. Higher oil prices are also set to widen the country’s current account deficit to 0.5%-1.3% of gross domestic product, compared to the earlier forecast of 0.1%-0.9%.
The rupiah has sunk to record lows past the 17,000 level per dollar, making it the worst performer among Asian currencies this month. Bank Indonesia has ramped up intervention in response, sending foreign-exchange reserves to a two-year low, while also lifting yields on rupiah securities to attract foreign funds and stabilise the currency.
Still, investor sentiment remains fragile, in part because of an ongoing review by MSCI Inc. of the country’s stock market status that could lead to a downgrade.
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“Ongoing MSCI-related uncertainty that is weighing on the stock market, persistent foreign outflows and a wider external deficit outlook point to near-term downside risks for the rupiah,” said Wee Khoon Chong, senior APAC market strategist at BNY. “While BI intervention should smooth volatility, any rapid FX reserves drawdown could exacerbate sentiment and accelerate rupiah depreciation.”
Indonesia is starting to see some net capital inflows at the start of the second quarter, mainly into government debt instruments, Warjiyo said. Tighter rules on dollar-buying have also cut average customer transaction volumes from US$78 million ($99.32 million) to US$60 million dollar per day, as of April 17, according to central bank data.
The central bank will meanwhile allow some primary dealers to sell FX contracts in the offshore non-deliverable forwards market, a move it said will help with its efforts to stabilise the exchange rate.
Indonesia’s economic growth also appears to have accelerated in the first quarter as the Eid al-Fitr celebrations and bonuses boosted domestic demand, Warjiyo said, maintaining the central bank’s 2026 GDP forecast for 4.9%-5.7% growth. Both the government and central bank are coordinating on policies to support the economy, he added.
“BI’s bias remains neutral, in our view, underscoring our baseline of no change to the policy rate this year. However, should external pressures build, rate hikes cannot be ruled out,” said Lavanya Venkateswaran, economist at Oversea-Chinese Banking Corp.
Bank Indonesia expects inflation to stay within its 1.5%-3.5% target this year and next, Warjiyo said. That’s even as Southeast Asian neighbours have been hit hard by price pressures, with inflation breaching target in the Philippines and Singapore raising its core inflation outlook.
“All told, we remain comfortable with our view that Bank Indonesia will leave rates unchanged over the coming months,” Capital Economics’ deputy chief emerging markets economist Jason Tuvey said in a note after the decision. “If the Iran war ends soon, we think there’s a good chance that BI will lean towards cutting rates towards the end of the year.”
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