Indonesia's Central Bank Surprises With Rate Hold—Update

By Ying Xian Wong

Indonesia's central bank surprised markets by leaving interest rates on hold at its October meeting, pausing after three consecutive cuts as it keeps an eye on the rupiah.

Bank Indonesia held its benchmark seven-day reverse repo rate at 4.75% on Wednesday, upending the expectations of six of seven economists polled by The Wall Street Journal.

The rupiah strengthened slightly after the decision, which Gov. Perry Warjiyo said is consistent with the central bank's expectations of low inflation within the 1.5%-3.5% target range and its mandate to maintain currency stability amid global uncertainty.

Indonesia's economic growth remains solid and must continue to be supported to align with the economy's potential, Warjiyo said. He added that Bank Indonesia will continue to strengthen its policy mix with fiscal measures to bolster growth, with full-year 2025 GDP expected to come in slightly above the midpoint of the 4.6%-5.4% range and rise further in 2026.

Going forward, the central bank will monitor the effectiveness of monetary-policy transmission, as well as prospects for growth, inflation and rupiah stability, to determine whether there's room for additional rate cuts, he said.

Bank Indonesia also left its overnight deposit facility rate unchanged at 3.75% and its lending facility rate at 5.50%.

Indonesia's policymakers likely want to gauge the impact of previous rate cuts before acting further, analysts say.

Bank Indonesia's focus on reviewing "monetary policy transmission so far" suggests a dovish bias and indicates it may not be long before rates are lowered again, said Jason Tuvey, deputy chief emerging markets economist at Capital Economics.

Capital Economics expects three more rate cuts, bringing the policy rate to 4.0% by early next year, as inflation remains subdued and growth concerns persist.

While Wednesday's decision may ease concerns over the central bank's independence amid government pressure for looser policy, Tuvey warned there remains a risk that political influence could push Bank Indonesia to ease more aggressively than expected in pursuit of President Prabowo's 8% GDP growth target.

The surprise signals a cautious approach as the central bank assesses the transmission of prior easing measures amid rupiah volatility and global uncertainty, said Kevin Khaw Khai Sheng at iFast Capital.

Given the uncertain domestic growth outlook and external risks, especially from U.S. policy, he expects BI to resume rate cuts in early 2026--assuming a firmer rupiah on a weaker dollar, with the central bank prioritizing financial stability over aggressive stimulus.

Write to Ying Xian Wong at yingxian.wong@wsj.com

(END) Dow Jones Newswires

October 22, 2025 05:20 ET (09:20 GMT)