Indonesia’s central bank, Bank Indonesia (BI), is expected to maintain its key interest rate at 6.25% through the next quarter to support the weak rupiah, according to a recent Reuters poll. The decision comes after BI unexpectedly raised its seven-day reverse repurchase rate to 6.25% last month, the highest level since 2016, in an effort to stabilize the currency.
Despite a slight improvement in the rupiah, which has gained over 1% since the rate hike, the currency is still down about 3.5% for the year compared to other Asian peers. Economists surveyed in the poll anticipate that BI will keep interest rates steady through the third quarter, with a potential 25 basis point cut to 6.00% before the end of the year.
The decision to hold rates is influenced by the dollar’s strength and the expected policy easing in the United States. Analysts believe that BI will continue to use various policy tools, including forex intervention, to support the currency and avoid over-tightening.
While some experts predict a rate cut by the end of the year, a majority expect rates to remain at 6.25% or higher due to the uncertain global economic landscape. The central bank has been utilizing its forex reserves to support the rupiah, but risks of further depreciation remain high, especially with a hawkish Fed outlook.
Overall, BI’s decision to maintain its key interest rate reflects the delicate balance between supporting the currency and stimulating economic growth in the face of external pressures.