By Gayatri Suroyo and Stefanno Sulaiman
JAKARTA (Reuters) -Indonesia’s central bank kept policy rates unchanged for a second straight review on Wednesday, as expected, against a backdrop of turmoil in local markets on concerns about global trade wars and the government’s fiscal policy.
Bank Indonesia (BI) held the benchmark 7-day reverse repurchase rate steady at 5.75%, as expected by 19 of 31 analysts polled by Reuters. The rest had expected a rate cut.
The central bank also left its two other key policy rates unchanged.
The decision came after the rupiah and Jakarta’s main stock index had dropped sharply on Tuesday as traders worried about the government’s fiscal strategy and the country’s economic growth outlook.
The rupiah was little changed at 16,520 per dollar – near to its lowest levels in five years – following the central bank decision on Wednesday.
Governor Perry Warjiyo said the currency should be strengthening based on Indonesia’s fundamentals, but was under pressure due to technical factors linked to global economic uncertainties.
Trump’s trade and fiscal policies in the U.S. have led to heightened global market instability and a shift of portfolio investment flows, and BI expects the U.S. Federal Reserve to cut rates only once this year.
Warjiyo said BI still sees room for further interest rate cuts of its own, but was waiting for the right time.
“The room for rate cut is still there. We will do it, but please be patient because the global condition is not allowing for that yet,” Warjiyo said.
February saw the first annual fall in Indonesia’s consumer price index since March 2000, largely due to the government’s substantial electricity price discount, which meant the index was well outside BI’s inflation target range of 1.5% to 3.5%.
Growth in Southeast Asia’s largest economy has for years stuck around 5%. Indonesian President Prabowo Subianto has a target of lifting growth to 8% during his term, which runs until 2029.
BI kept its growth outlook for 2025 at 4.7% to 5.5%.
“While there remains significant ambiguity over the monetary policy reaction function – and thus the timing and magnitude of future rate cuts – our base case remains for BI to next cut its policy rate by 25 bps once this year in Q2 2025 and once more next year in Q2,” said Barclays economist Brian Tan.
(Reporting by Gayatri Suroyo, Stefanno Sulaiman, Ananda Teresia, Fransiska Nangoy; Editing by John Mair and Kate Mayberry)
