Indonesia Holds Interest Rates Amid Currency Concerns

Jakarta - Indonesia's central bank, Bank Indonesia (BI), has maintained its benchmark interest rate at 5.75%, opting to pause its easing cycle and prioritize exchange rate stability. The move comes amid heightened concerns over currency weakness stemming from US President Donald Trump's tariff threats.

Despite expectations of a quarter-point cut, BI Governor Perry Warjiyo emphasized the importance of economic stability. "That's why we continue to be in the market and maintain the stability of the rupiah, especially when global turmoil is high," he stated.

The decision follows a similar pause by the Philippine central bank last week, highlighting the challenges policymakers face in balancing currency protection and economic growth.

While BI acknowledges room for further rate cuts, the timing will depend on global conditions. The central bank has been intervening in the foreign exchange market "almost every day" to support the rupiah.

To offset the impact of elevated borrowing costs, BI has expanded incentives for banks to lend to priority sectors, including public housing. Reserve requirement ratios for lenders will be reduced by up to 500 basis points, potentially cutting the required ratio by more than half.

The rate pause reflects BI's continued focus on currency stability, as part of its mandate. It follows a government requirement for exporters to keep 100% of their overseas earnings onshore to strengthen foreign exchange reserves.

Warjiyo said the decision supports inflation targets while mitigating global uncertainties and fostering economic growth.

Despite BI's efforts, the rupiah has weakened by 1.4% this year and has faced pressure from capital outflows. The nation's benchmark stock index declined by 1.1% on Wednesday, reflecting expectations of slowing economic growth.

BI's decision to pause rate cuts aligns with its commitment to balance rupiah stability and economic support. The central bank may consider further easing in the future, depending on global developments.