(Bloomberg) — Indonesia’s central bank kept its key interest rate unchanged for a second straight month, seeking to safeguard the rupiah after concerns about the economy’s outlook triggered a market selloff this week.
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Bank Indonesia kept the BI-Rate at 5.75% on Wednesday as predicted by most of the economists in a Bloomberg News survey. The central bank also maintained its growth and inflation forecasts for this year, and said the rupiah is expected to stabilize in coming weeks.
“While there is still room for interest rate cuts, global conditions have yet to allow it,” Governor Perry Warjiyo told reporters in Jakarta, adding that the central bank will monitor currency movements, inflation and economic growth when considering its next move.
The rupiah extended losses to 0.6% against the dollar after the decision. Stocks pared its gains to 1.4% while the 10-year government bond yield rose further to 7.08%, the highest in two months.
The policy decision comes a day after a stock market meltdown that was fueled by a combination of domestic factors — from President Prabowo Subianto’s economic policies to a worsening fiscal outlook. A key factor was fear that veteran Minister of Finance Sri Mulyani Indrawati would resign, a rumor she allayed late Tuesday afternoon.
“It’s encouraging that the rates have been held steady in a time of such uncertainty,” said Nirgunan Tiruchelvam, an analyst at Aletheia Capital in Singapore. “Steadiness is key and the governor is a safe pair of hands. The market will stabilize.”
Tuesday’s selloff triggered trading halts that were last seen in 2020 during the pandemic, prompting BI to actively intervene in the markets to stem the rupiah’s volatility.
The rate pause indicates the central bank remains vigilant on the currency amid growing uncertainties both at home and abroad. The rupiah has lost more than 1% against the dollar over the past month and is the worst performer in Asia.
Despite Warjiyo’s desire to ease, a rate cut now could fuel further capital outflows and put more pressure on the rupiah. Also weighing on the outlook is the US Federal Reserve’s policy path, which has become more uncertain because of the prospect of tit-for-tat tariffs that are set to start in April. The Fed is expected to hold rates steady later Wednesday.
“BI is unlikely to preempt the Fed in cutting rates, especially with the rupiah having touched 16,500 today,” said John Tsai, a portfolio manager at Eastspring Investments in Singapore. MUFG Bank Ltd. FX strategist Lloyd Chan sees the currency touching 16,625 against the dollar in the second quarter.
