Bank Indonesia Holds Rates Steady Amid Global Uncertainty

Amid rising global uncertainty, Bank Indonesia has kept its key interest rate unchanged for the third month in a row. As the rupiah weakens and growth projections dip, the central bank faces a tough balancing act between stability and momentum.

Bank Indonesia holds rates steady to defend rupiah, support growth

Steady Rates Reflect Cautious Strategy

On April 23, Bank Indonesia (BI) opted to maintain its benchmark interest rate at 5.75% for the third consecutive month. This decision reflects the central bank’s cautious stance as it attempts to balance currency stability with the country’s broader economic growth ambitions. The overnight deposit and lending facility rates were also held steady at 5% and 6.5%, respectively.

Growth Outlook Trimmed Amid Trade Tensions

In a slight shift, BI lowered its growth forecast for 2025 to approximately 5.1%, which is just below the midpoint of its previously projected 4.7%–5.5% range. The adjustment comes as global trade challenges, especially the ongoing US-China tariff dispute, cast a shadow over export performance. BI Governor Perry Warjiyo highlighted that a slowdown in global trade could dampen demand for Indonesian goods, particularly if economic activity in the US and China weakens.

Rupiah Under Pressure Despite Softer Dollar

The Indonesian rupiah has been Asia’s weakest-performing major currency this year, slipping over 4.6% against the US dollar. This decline persists even though the US Dollar Index has softened amid capital outflows and recession fears. Market concerns around President Prabowo Subianto’s fiscal plans and sluggish domestic consumption have further contributed to the rupiah’s decline.

BI Prioritizes Currency Stability

While BI has maintained a tight monetary stance, analysts believe the bank is exploring the possibility of loosening rates in the future. However, with the current global climate marked by uncertainty and trade frictions, the focus remains on defending the rupiah.

Regional Slowdown and IMF Downgrades

Indonesia isn’t alone in facing economic headwinds. The International Monetary Fund (IMF) recently cut its forecast for Indonesia’s 2025 growth from 5.1% to 4.7%. Neighboring countries have followed suit: Malaysia revised its projection to 4.1%, the Philippines to 5.5%, and Thailand to just 1.8%. These downward revisions underscore the broader regional impact of slowing global trade.

Policy Measures to Support the Rupiah

To counter volatility and support the rupiah, BI is actively intervening in the offshore non-deliverable forwards market. Governor Warjiyo confirmed that the central bank will issue securities aimed at attracting foreign capital. This follows a previous intervention on April 7, shortly after former US President Donald Trump introduced sweeping tariff measures on April 2.

Final Thoughts

BI’s decision to hold rates steady underscores the delicate balancing act it faces: defending the currency while trying not to stifle economic growth. With global trade tensions lingering and external risks mounting, the central bank appears poised to act decisively in the months ahead—whether through market intervention or potential rate adjustments—to keep the Indonesian economy on track.