By Ying Xian Wong
Indonesia’s central bank kept interest rates unchanged again in its first policy meeting of the year, a decision that comes as the rupiah slides to new lows and concerns mount over the country’s fiscal outlook.
Bank Indonesia on Wednesday maintained its benchmark seven-day reverse repo rate at 4.75%, marking a fourth consecutive hold.
The decision came against an increasingly volatile backdrop: The rupiah has fallen to a record low, geopolitical tensions have intensified and markets have grown more concerned about the direction of Indonesia’s monetary and fiscal policy.
Investor concerns have also been heightened by President Prabowo Subianto’s nomination earlier this week of his nephew as a deputy governor of the central bank, a move that has raised questions about BI’s independence.
While it is fairly standard practice across Asian emerging markets for government appointees to sit on central bank committees, the unexpected nomination has exacerbated market perceptions around policy independence, OCBC economist Lavanya Venkateswaran wrote in a note.
In addition, as Bank Indonesia continues to battle currency pressures, it was little surprise that all seven economists polled by The Wall Street Journal had expected the central bank to stand pat on Wednesday. The overnight deposit facility rate was held at 3.75% and the lending facility rate at 5.50%.
The decision aligns with the bank’s current focus to stabilize the rupiah, maintains inflation within targeted range and support growth, Gov. Perry Warjiyo said at a press conference.
Another source of pressure on Indonesian assets is that government measures could push the fiscal deficit beyond the current cap of 3% of gross domestic product.
That said, many analysts say Bank Indonesia is likely to continue assessing scope for policy easing later on.
Goldman Sachs expects two 25-basis-point rate cuts in 2026–one in the first quarter and another in the second–bringing the policy rate to 4.25%. Risks to that view are skewed to the hawkish side, with fewer or later cuts possible if currency pressures persist, Goldman Sachs economists said.
Write to Ying Xian Wong at yingxian.wong@wsj.com
(END) Dow Jones Newswires
01-21-26 0308ET