\n By Ying Xian Wong <\/p>\n
\n Indonesia’s central bank kept interest rates unchanged at its first policy meeting of the year, as the rupiah slid to record lows and concerns mounted over the country’s fiscal outlook. <\/p>\n
Bank Indonesia on Wednesday maintained its benchmark seven-day reverse repo rate at 4.75%, marking a fourth consecutive meeting, as expected by all seven economists polled by The Wall Street Journal. The overnight deposit facility rate was held at 3.75% and the lending facility rate at 5.50%. <\/p>\n
The decision reflects the bank’s focus on stabilizing the rupiah amid rising global uncertainty, keeping inflation within its targeted range and supporting economic growth, Gov. Perry Warjiyo said at a press conference. <\/p>\n
Looking ahead, BI said it will continue to enhance the effectiveness of existing monetary and macroprudential easing while assessing scope for further rate cuts, provided inflation in 2026-2027 remains within the 1.5%-3.5% target range and growth is supported. <\/p>\n
The decision comes 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. <\/p>\n
The rupiah strengthened 0.2% to 16,931 against the U.S. dollar on Wednesday afternoon following the rate decision. <\/p>\n
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. <\/p>\n
Warjiyo said the appointment process is being carried out in line with central bank regulations and stressed that it will not affect BI’s independence or policymaking, which he said remains collective, professional and governed by strong safeguards. <\/p>\n
As BI continues to assess room for rate cuts, the easing cycle is expected to resume in coming months, Capital Economics’ Jason Tuvey said in a note. CE expects a total of 75 basis points of cuts, taking the policy rate to 4.0% by the end of 2026. <\/p>\n
Barclays economist Brian Tan said Bank Indonesia is likely to deliver two further 25-basis-point cuts, to a terminal rate of 4.25%, potentially in June and December, with timing highly dependent on rupiah stability. The rupiah would need to stabilize for a sustained period before easing can proceed, Tan said. <\/p>\n
Concerns over the central bank’s independence are unlikely to prompt significantly more aggressive easing, as currency stability will continue to constrain policy choices. <\/p>\n
Barclays also struck a cautious tone on 2026 growth, warning that limited gains from fiscal spending and credit support could eventually push policymakers toward more unorthodox measures. <\/p>\n
\n Write to Ying Xian Wong at yingxian.wong@wsj.com <\/p>\n
\n (END) Dow Jones Newswires<\/p>\n
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