[JAKARTA] Bank Indonesia (BI) stood firm on Wednesday (Apr 23) as it kept its benchmark interest rate steady at 5.75 per cent for the third month in a row, even as it works to shield the rupiah from mounting global pressures.
The central bank also slightly downgraded its economic growth outlook for the year amid ongoing trade tensions.
The decision, widely expected by economists surveyed by Bloomberg, highlights BI’s delicate balancing act between ensuring currency stability and sustaining economic momentum to achieve President Prabowo Subianto’s ambitious 8 per cent growth target.
BI also maintained its overnight deposit facility and lending facility rates at 5 per cent and 6.50 per cent, respectively.
The central bank’s governor Perry Warjiyo said lingering uncertainty from the US-China tariff war could put pressure on Indonesia’s economic growth, given that slowing global trade would weigh on export performance.
BI now expects Indonesia’s full-year growth to come in at slightly below the midpoint of its target range of 4.7 to 5.5 per cent, or at around 5.1 per cent.
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“We are monitoring the risk of the direct impact of the reciprocal tariffs, particularly the potential economic slowdown in the US and China, which could lead to reduced demand for Indonesian exports,” he said.
Lloyd Chan, senior currency analyst at MUFG, said that maintaining rupiah stability will be a key priority for BI amid the heightened global trade uncertainty.
However, he believes that BI is still exploring opportunities to ease interest rates as its current monetary stance remains tight and continues to weigh on economic activity, particularly amid rising US import tariffs.
BI’s downgraded growth outlook comes on the heels of the International Monetary Fund’s revision to Indonesia’s 2025 economic forecast, cutting it to 4.7 per cent from 5.1 per cent.
Other regional peers also made downward revisions to their growth projections: Malaysia lowered its figure to 4.1 per cent from 4.7 per cent; the Philippines, to 5.5 per cent from 6.1 per cent, and Thailand, to 1.8 per cent from 2.9 per cent.
Indonesia was hit by a 32 per cent tariff from the US, before President Donald Trump granted a 90-day reprieve, with the baseline tariff set at 10 per cent.
The rupiah is the only major Asian currency to weaken against the US dollar this year. It has depreciated more than 4.6 per cent so far amid investor concerns over Prabowo’s controversial fiscal agenda and softening domestic consumption.
The decline comes despite a softer US Dollar Index, which has eased amid capital outflows from the US driven by trade tensions and growing recession fears.
Analysts at Nomura noted in a report that bond markets in Indonesia, and to some extent South Korea, could be more vulnerable to offshore outflows amid shifts in US yields.
“Indonesian bonds are somewhat vulnerable, in our view. BI is one of the most sensitive Asian central banks to FX rates, so it will be less willing to look through FX risks to local developments,” they wrote.
BI’s Warjiyo said the central bank will intervene in the offshore non-deliverable forwards market by issuing securities to attract more foreign inflows and help stabilise the rupiah.
The central bank previously intervened in the offshore market on Apr 7, just days after the sweeping tariff measures announced by Trump on Apr 2.
