Indonesian Central Bank Maintains Interest Rate to Support Rupiah and Economy

The Indonesian Central Bank (BI) has maintained interest rates for the third consecutive time to support the rupiah and the economy. According to the announcement from BI, the benchmark 7-day reverse repo rate remained at 6.00%. Most analysts expected no change in the rates, although there were also a significant number of those anticipating a cut.

The Central Bank also held the overnight deposit facility rate at 5.50% and the lending facility rate at 6.75%. BI Governor Perry Warjiyo stated that the decision aims to support the country's economic growth, preserve the stability of the rupiah, and keep inflation within the target range of 1.5% to 3.5% for 2024 and the following year.

Economists suggest that central banks in Asia may prefer a wait-and-see approach ahead of their decisions, especially in light of the uncertainties surrounding how U.S. monetary policy will evolve by 2025 and whether it will lead to a more or less dovish Fed. Amid renewed pressure on the rupiah, partly due to the strengthening of the dollar, analysts believe that BI will prioritize a stable rupiah over maintaining a narrow interest rate differential with the U.S.

The Indonesian Central Bank initiated a easing cycle in September but has since kept interest rates steady.