Bank Indonesia Expected to Hold Interest Rates Steady
BENGALURU, Nov 17 – Economists are largely predicting that Bank Indonesia will maintain its key interest rate at 4.75% during the meeting on November 19. This decision appears aimed at alleviating pressure on the rupiah while encouraging commercial banks to lower lending rates, according to a recent Reuters poll.
Last month, when Bank Indonesia unexpectedly paused its rate cuts, Governor Perry Warjiyo emphasized the need for private banks to reduce lending rates. This move is intended to support businesses and households facing high borrowing costs amidst weak consumer demand.
The rupiah, one of the weaker currencies in emerging markets, has depreciated close to 4% against the dollar this year. This trend seems to point to a steady policy continuation in the upcoming meeting.
Yet, some economists caution that Wednesday’s decision might defy expectations, especially as it contrasts with the consensus from the previous three meetings.
Governor Warjiyo mentioned last month that inflation is anticipated to remain low until 2026, allowing space for potential rate cuts. In October, inflation reached 2.86%, marking its highest increase this year but still within the target range set by the central bank of 1.5% to 3.5%.
In the recent poll, 24 out of 30 economists indicated that they believe Bank Indonesia will keep the benchmark seven-day reverse repo rate unchanged at 4.75%. Other interest rates, including those for overnight deposits and lending, are expected to remain stable at 3.75% and 5.50%, respectively. It seems likely that any significant policy shifts will require careful consideration.
As Jing Yi Tan, an economist at Mizuho Bank, points out, Bank Indonesia is walking a tightrope. While they aim for a pro-growth approach, the ongoing currency weakness is likely to influence decision-making. The high lending rates indicate that there may be a need for adjustments in policy communication instead of drastic rate reductions.
Although the anticipation is that they’ll hold rates steady for this meeting, a majority of economists (21 out of 24) still expect the benchmark rate to drop by 25 basis points to 4.50% next month. There’s a single prediction for a more significant 50 basis point cut, while two believe the rate will stay at 4.75%.
Crystal Tan from ANZ commented that any further cuts could depend more on timing, given the ongoing weakness in domestic demand and sluggish loan growth.
Looking ahead, 17 out of 22 economists foresee a decrease in the benchmark interest rate to 4.25% by the end of the first quarter of 2026. Some predict 25 basis points, while a couple have suggested a drop to 4.00%.
