Indonesia: Central Bank leaves rates unchanged in February
Expected pause after an unexpected cut: At its meeting on 18–19 February, Bank Indonesia (BI) decided to keep the BI-Rate at 5.75%, largely in line with market expectations. The move followed a surprise cut of 25 basis points in January.
Currency stability becomes top priority: After Governor Perry Warjiyo stated in January that BI had shifted its stance to pro-stability and growth, February’s decision signaled that the Bank was still determined to stabilize the rupiah amid uncertainty in global trade fueled by Donald Trump’s policy agenda. Regarding price stability, January saw inflation plunge to an over 20 year low, moving outside BI’s 1.5–3.5% tolerance band for the first time since June 2021. Moreover, GDP growth accelerated in Q4 2024, and the Bank noted that domestic demand continues to fuel the economy. These developments allowed BI to stand pat and prioritize currency stability.
Cuts to resume before end of H1: In its communique, BI stated that it will continue to focus on bringing inflation within target, stabilizing the rupiah and encouraging economic growth. In a press briefing, Governor Warjiyo said while he still saw room to cut rates, global dynamics would determine their timing. The majority of our panelists expect cuts before the end of June, and our Consensus is for the BI-Rate to end 2025 about 50 basis points below its current level. Rupiah volatility and stronger-than-expected inflation pose upside risks to the policy rate, while the U.S. Fed’s policy stance is a bi-directional risk.
The Bank will reconvene on 18–19 March.
Panelist insight: EIU analysts said:
“The central bank will remain cautious and make only small adjustments to avoid excessive pressure on the currency. We expect this to result in a single and final 25-basis-point cut in the third quarter of 2025, mirroring the decision by the Federal Reserve to cut its policy rate twice in 2025. That said, if the rupiah recovers its value, we believe that BI will bring forward its interest-rate cut to the second quarter of 2025.”
Nomura analysts Euben Paracuelles and Nabila Amani took a more hawkish view:
“We maintain our forecast that BI will leave the policy rate unchanged at 5.75% for the rest of the year based on our view that high external risks will persist, particularly from a relatively aggressive implementation of US tariffs under Trump 2.0. […] We would argue that BI has scope to continue using other instruments under its policy mix framework to support growth, rather than the policy rate.”