BENGALURU- Bank Indonesia is likely to hold interest rates steady, focusing on the rupiah’s stability amid slowdown concerns, according to a Reuters poll of economists, who noted that global headwinds could limit the central bank’s ability to ease rates this year.
Last month, BI unexpectedly cut interest rates by 25 basis points to 5.75 percent to stimulate growth in Southeast Asia’s largest economy. The cut occurred despite a weakening rupiah which had dropped more than 7 percent against the dollar from its September 2024 peak.
However, economists do not anticipate the central bank will follow up its surprise easing with another reduction at the February 19 meeting, suggesting that BI would prioritize on maintaining the rupiah’s stability, its primary mandate.
Nearly 75 percent of economists, or 26 of 35 polled by Reuters during February 10-17, expect Bank Indonesia to keep the benchmark seven-day reverse repurchase rate at 5.75 percent on Wednesday to defend the rupiah. The remaining nine economists anticipate a 25-basis-point cut.
“I don’t think it’s clear from January cut that they’ve completely turned the dial to become a bit more pro-growth. Judging from (FX) interventions they’ve been doing … I think they’re still keeping an eye on their FX stability mandate, that’s why I expect them to stay on hold,” said Euben Paracuelles, chief ASEAN economist at Nomura.
Although median projections suggest at least one 25-basis-point cut from 5.75 percent to 5.50 percent in the next quarter – with rates remaining at that level for the rest of the year – there was no consensus among economists.
“BI’s unexpected lurch towards dovishness up-ends our understanding of the central bank’s thought process around monetary policy and introduces significant uncertainty over how policymakers will navigate the policy rate,” said Brian Tan, senior regional economist at Barclays.
Global trade tensions and uncertainty surrounding the US Federal Reserve’s monetary policy, as inflation accelerated in the region, were clouding the outlook.
“The external environment has not improved. If anything, the uncertainty has increased,” Paracuelles said.
