Indonesia holds key interest rates at 6.25%

Indonesia’s central bank, Bank Indonesia (BI) has kept its key interest rates unchanged on Wednesday, as widely anticipated.

The decision reflects the central bank’s preference to focus on stabilising the rupiah exchange rate before considering potential rate cuts later in the year.

The benchmark 7-day reverse repurchase rate was kept at 6.25 per cent, the overnight deposit facility rate at 5.5 per cent, and the lending facility rate at seven per cent.

BI Governor Perry Warjiyo indicated that while there is room for rate cuts in the fourth quarter, the current focus is on strengthening the rupiah against the US dollar.

Inflation has remained within the central bank’s target range of 1.5 per cent to 3.5 per cent since mid-2023, easing to 2.13 per cent in July, the lowest level since February 2022.

In April, BI surprised markets with a rate hike to support the rupiah, which had fallen to four-year lows against the US dollar amid geopolitical concerns and uncertainty about US interest rates.

The rupiah has appreciated by about five per cent this month, reaching its strongest level this year, as the US dollar weakens on expectations of a rate cut by the Federal Reserve in September.

The rupiah was trading at 15,480 per dollar on Wednesday, slightly weaker than the previous day’s high, which was the strongest level since the beginning of the year.

Several central banks, including those in the Philippines and New Zealand, have started easing their monetary policies. However, the Bank of Thailand maintained its key interest rate on Wednesday.

Attribution: Reuters

Subediting: Y.Yasser