Indonesia’s central bank decided to leave its primary interest rate unchanged on Wednesday, choosing not to raise rates for a third straight time, despite most analysts projecting another increase. Bank Indonesia’s (BI) decision follows recent moves aimed at supporting the country’s currency, the rupiah.
The seven-day reverse repurchase rate remains at 5.75%, with BI holding deposit and lending facility rates steady at 4.75% and 6.50%, respectively. A Reuters poll found that economists had anticipated an additional 25-basis-point hike, while the remainder accurately forecasted no change.
BI Governor Perry Warjiyo explained that the central bank is implementing broader incentives and additional measures designed to attract more foreign portfolio investment, help stabilize the rupiah, advance the development of local currency and foreign exchange markets, and improve liquidity conditions within the financial system.
Warjiyo also stated that macroprudential tools and payment systems will continue to be used actively to create favorable conditions for economic expansion, ensuring that the financial system can further support growth through increased credit availability without compromising overall stability.
Bank Indonesia has raised rates by a combined 100 basis points since May, in an effort to draw capital inflows and relieve pressure on the rupiah amid worries about fiscal policy, central bank autonomy, and regulations concerning commodity exports.
Prior to the announcement, the rupiah was steady at 17,898 per U.S. dollar. After reaching a record weak level of 18,190 per dollar on June 8, the currency has stabilized but remains close to the 18,000 mark.
Inflation increased at their fastest pace in three months in June, with inflation reaching 3.34%. This rise has been attributed to more expensive non-subsidized fuel, while analysts caution that higher food prices may persist in the coming months due to possible disruptions from the ongoing El Niño weather pattern.
