Indonesia: Bank Indonesia leaves rates unchanged in January
Latest bank decision: At its meeting on 20–21 January, Bank Indonesia (BI) decided to maintain the BI-Rate at 4.75% for the fourth consecutive meeting. As such, the rate remained at its lowest level since 2022. The hold aligned with market expectations.
Rupiah weakness remains a concern: BI kept rates unchanged primarily to support the rupiah, which depreciated to record lows against the USD in mid-January. The Bank attributed the currency’s weakness to geopolitical risks, fiscal concerns, lower expectations of Fed rate cuts and stronger FX demand from domestic firms and banks. That said, the rupiah also came under pressure due to investor unease over BI’s independence after President Prabowo Subianto nominated his nephew as BI deputy governor earlier in the month. This appointment could pressure BI to deliver more rate cuts to boost GDP growth at the cost of currency stability.
Furthermore, January’s hold aimed to keep inflation within BI’s target range of 1.5–3.5%, after price pressures edged closer to the target ceiling in December. BI also expects GDP growth to accelerate in 2026 relative to 2025.
Policy outlook: In its forward guidance, the Bank said it saw room for further BI-Rate reductions, as it sees inflation remaining within the target corridor and economic growth below potential. Virtually all of our panelists expect rate cuts to resume this year, with a relatively narrow spread of 25–75 basis points. Our Consensus is for within-target inflation and broadly stable GDP growth, lending support to expectations of rate cuts ahead. Still, a minority sees BI on hold until end-2026, likely due to a persistently weak rupiah.
BI will reconvene on 18–19 February.
Panelist insight: Nomura analysts commented:
“We maintain our forecast that BI will cut its policy rate by an additional 50bp in this cycle to 4.25%, though the timing remains uncertain and contingent on the external backdrop becoming more favourable for FX stability. As mentioned, we think BI’s tone was still dovish, with BI guiding that it has room to lower rates further. At the same time, we continue to expect BI to focus on implementing measures, including on boosting domestic liquidity conditions to improve policy transmission. We expect BI to deliver the rate cuts in March and June, but acknowledge a rising risk of a delay as new external risks have emerged.”
DBS Bank analysts said:
“We expect the BI to pause and keep the benchmark rate unchanged in February, while monitoring volatility in the equity markets and impact on investor sentiments after the rating outlook change. […] In the near-term, rupiah underperformance amid a pickup in inflation and steady growth might keep the BI from lowering rates. Our baseline call is for further cuts this year, but likely in the second half.”