- BI cites impact of Iran war reduces possibility of future rate cuts
- BI tightens currency transaction rules to support rupiah
- BI expects stable rupiah, maintains GDP growth forecast at 4.9%-5.7%
JAKARTA, March 17 (Reuters) - Indonesia's central bank kept its key interest rates unchanged on Tuesday and signalled little room for rate cuts ahead given the impact of the war in the Middle East.
Bank Indonesia held the benchmark 7-day reverse repurchase rate at 4.75%, as had been forecast by 24 of 26 economists polled by Reuters, and also held its overnight deposit and lending facility rates at 3.75% and 5.50%, respectively.
"The impact of this Middle East war is indeed why we no longer convey the possibility of an interest rate cut in this statement," BI governor Perry Warjiyo said in an online press conference. "We are likely to maintain the BI rate for now to strengthen FX intervention."
BI also said some rules on currency transactions would be tightened from next month to support the rupiah .
The currency has traded at record lows near 17,000 per dollar this month after a spike in crude prices caused by the war stoked inflation fears globally. It was unchanged at 16,980 per dollar after the BI announcement on interest rates.
The currency was already under pressure amid investor concerns over fiscal management, central bank independence and governance of the country's stock market.
"The on-hold decision underscores the central bank's focus on financial market stability, in the midst of global Middle East tensions and domestic fiscal risks," DBS economist Radhika Rao said. "If risk appetite remains subdued, rate cuts for the rest of the year will be off the table."
BI cut the benchmark rate by a total of 150 basis points between September 2024 and September 2025.
Warjiyo expected the rupiah to remain stable going forward due to good domestic economic prospects and manageable inflation, but also said the central bank had intensified its intervention because the Iran war had affected the currency.
Inflation in Southeast Asia's largest economy was 4.76% in February, above BI's target range of 1.5% to 3.5%. Officials said this was due to electricity tariff discounts in early 2025 and that the rate would fall back to within the bank's target soon.
Despite the uncertainty over the impact of the war in Iran, which Warjiyo said would worsen global growth prospects, BI maintained its forecast for GDP growth this year at 4.9% to 5.7%.
Reporting by Stefanno Sulaiman, Stanley Widianto; Editing by John Mair, Martin Petty and Kate Mayberry
Source: Reuters