Bank Indonesia to Hold Rates as Currency Pressures Mount
Bank Indonesia is expected to maintain its benchmark interest rate at 5.75%, reflecting a cautious stance amid the rupiah's depreciation and mixed economic signals. With the rupiah near five-year lows and influenced by external uncertainties, the central bank is balancing the need to support economic growth while ensuring currency stability. BI's future rate decisions will hinge on inflation trends and currency movements, as it carefully monitors a range of economic indicators to guide its monetary policy.
Bank Indonesia (BI) is expected to maintain its benchmark interest rate at 5.75% in its upcoming policy meeting, as the central bank grapples with rising pressure on the Rupiah (IDR) and a challenging external environment. The rupiah has weakened by over 4% since the start of the year, nearing its lowest level in five years. The currency has been caught in a wider selloff of emerging-market assets, fuelled by delays in the US Federal Reserve’s monetary easing, ongoing global uncertainty, and a wave of new US trade tariffs. Among these, a 32% tariff on Indonesian goods—though currently paused for 90 days—has raised alarms over the country’s export outlook. According to Finance Minister Sri Mulyani Indrawati, the tariff could shave 0.3 to 0.5 percentage points off GDP growth.
While headline inflation remains manageable -- averaging 2% this year, according to our forecasts—concerns are shifting toward growth. The economy expanded by 5.03% in 2024, roughly in line with its long-term average, but fell short of government expectations. Softer external demand and domestic fiscal tightening are expected to hurt growth in 2025. The government's ambitious plans to ramp up spending have also raised concerns about fiscal sustainability, weighing on investor sentiment and contributing to equity and bond market volatility in recent weeks.
Despite these pressures, BI is expected to remain cautious. Although market pricing suggests scope for rate cuts later in the year—potentially by 25 basis points in Q2 and again in Q3—the near-term policy stance is likely to remain focused on stabilising the rupiah. Governor Perry Warjiyo has previously indicated that future easing will depend on the currency’s behaviour and the trajectory of inflation, which currently sits near the lower end of the central bank’s 2.5% ±1% target range.
The March decision is therefore expected to reaffirm BI’s current stance: keeping borrowing costs elevated to protect external stability while allowing space for future easing if conditions permit. With global risks rising and the rupiah under pressure, a steady hand remains the central bank’s preferred course.