By Ying Xian Wong
Indonesia's central bank held interest rates steady again as volatility in local markets and the rupiah make the case for policymakers to tread cautiously, even as they continue to leave the door open to cuts.
Domestic unease and heightened uncertainty abroad had economists divided on what Bank Indonesia would do ahead of its decision to keep the benchmark seven-day reverse repo rate at 5.75% on Wednesday.
Six out of nine economists polled by The Wall Street Journal had forecast a hold, while three had projected a 25-basis-point cut, as slowing growth and cooling inflation in Southeast Asia's largest economy suggest space for more monetary easing.
The central bank also held its overnight deposit facility rate at 5.00% and its lending facility rate at 6.50%, keeping policy settings unchanged again after pausing at its prior meeting in February.
The move aligns with the bank's goal of maintaining inflation within the target range while supporting growth, Bank Indonesia Gov. Perry Warjiyo said at a press conference on Wednesday.
The latest decision comes as concerns over Indonesia's economy and recent policy moves sent equities markets tumbling on Tuesday. An impending rate decision by the Federal Reserve is also in focus, and could add to the sense of caution as the rupiah wavers.
The circuit breaker-triggering slide in equities was sparked by a combination of triggers, including a lack of clarity over budget spending allocation and speculation over the finance minister's resignation, DBS senior economist Radhika Rao said in a recent note.
Indonesian stocks extended gains after the Wednesday's rate announcement, with the benchmark index up 1.6% after finishing 3.8% lower overnight.
Warjiyo gave an upbeat view of Indonesia's economic prospects, saying growth remains stable despite global uncertainties, supported by strong household consumption, government spending and rising non-oil exports, particularly of palm oil and motor vehicles.
The central bank expects the economy to expand 4.7% to 5.5% this year, and will continue with policy measures to maintain stability and encourage sustainable growth, he added. Indonesia notched growth of 5.04% last year.
Consumer price growth remained low in February, and Bank Indonesia expects inflation to stay within its 1.5% to 3.5% target range this year, backed by stable core inflation, controlled imported inflation and policy coordination with the government.
Warjiyo also sounded optimistic about the rupiah, noting that the currency steadied in March after a 1.69% decline in February. Central bank intervention and strong economic prospects should help keep the rupiah stable, Bank Indonesia said.
Some analysts are not so upbeat, seeing more depreciation in store for the Indonesian currency, especially if tariffs fuel more trade and growth concerns.
The rupiah is the worst-performing Asian currency year to date, Capital Economics senior Asia economist Gareth Leather said in a note.
"We expect a little bit of further weakness against the greenback over the coming months, which we think will make the central bank cautious about the pace which it lowers interest rates," he said.
The rupiah has shed about 1.6% versus the dollar so far this year, according to FactSet.
CE now projects a total of 75 basis points in rate cuts by Bank Indonesia this year, down from its earlier forecast of 125 basis points.
Kenanga Investment Bank economist Muhammad Saifuddin Sapuan echoed the cautious view on rupiah, noting pressure from global and domestic uncertainties. He expects Bank Indonesia to maintain its policy stance near term--and possibly for the rest of the year--to support the currency.
For Barclays economist Brian Tan, it seems clear that the central bank wants to cut further but isn't keen to ease aggressively. Policymakers at Bank Indonesia continue to expect only one rate cut from the Fed this year, Tan noted, with the U.S. central bank in no rush to deliver that.
"The issue now is mainly one of timing, especially around the ebb and flow of the IDR," he said, adding that risks are "tilted towards front-loaded easing--especially if there are signs that fiscal policy is potentially providing less support for the economy this year."
Write to Ying Xian Wong at yingxian.wong@wsj.com
(END) Dow Jones Newswires
March 19, 2025 05:54 ET (09:54 GMT)
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