- BI focusing on transmission of past rate cuts
- Liquidity incentive planned for banks committed to cutting rates
- BI has intervened to defend rupiah amid capital outflows
- Some economists predict more cuts through 2026
JAKARTA, Oct 22 (Reuters) - Indonesia's central bank unexpectedly kept key interest rates unchanged on Wednesday, pausing after three successive cuts, as policymakers assess the impact of previous reductions.
Bank Indonesia kept the benchmark 7-day reverse repurchase rate at 4.75%. Of 28 economists polled by Reuters, 21 had expected a 25 basis points cut, with the rest predicting no change. The overnight deposit and lending rates were also kept unchanged.
Governor Perry Warjiyo said there was still room for further rate cuts due to expected low inflation through 2026, but BI's current goal was to get commercial banks to lower their lending rates to ease pressure on businesses and households.
"After six rate cuts, our focus now is on strengthening transmission of monetary policies that we have carried out," Warjiyo told an online press conference.
The decision to hold rates steady was consistent with the central bank's efforts to maintain rupiah stability while also working to improve monetary policy transmission, the central bank said in a statement.
Since September 2024, Bank Indonesia has lowered rates six times, totalling 150 basis points. However, banks have on average only lowered borrowing rates by 15 bps so far this year, while undisbursed loans stood at 2,374.8 trillion rupiah ($143.32 billion), BI said.
To strengthen transmission, BI from December 1 will expand its liquidity incentive to banks that commit to cutting their interest rates in line with benchmark rates.
Currently, banks that lend to certain sectors can reduce required reserve level by up to 5 percentage points. BI will add 50 bps additional reduction for banks committing to lowering lending rates. The current reserve requirement ratio is 9%.
BI maintains the outlook for 2025 GDP at slightly above the mid-point of the 4.6% to 5.4% forecast range and anticipates higher growth in 2026.
CURRENCY INTERVENTION AMID CAPITAL OUTFLOWS
The rate pause also took into account the rupiah's movements amid market uncertainties, including the impact of U.S. tariffs on global trade, Warjiyo said.
The rupiah erased earlier losses on Wednesday to trade 0.1% stronger after the decision. The currency is down by 3% against the dollar this year, one of the weakest in emerging Asia. Analysts have flagged fiscal management and central bank independence as key concerns.
Warjiyo said BI had intervened to defend the currency, especially as the central bank recorded $5.26 billion net portfolio outflows between September and October 20.
Some economists still see BI continuing to cut rates through 2026.
"While counting on gradual policy transmission and other macroprudential measures, we still retain our call for at least one more cut this quarter to underscore the BI's growth-supportive stance," DBS Bank economist Radhika Rao said, maintaining her forecast for 50 bps in cuts between this quarter and next.
President Prabowo Subianto seeks to lift economic growth to 8% during his term, from around 5% in the post-pandemic era. For 2026, he has set a target of 5.4%.
Finance Minister Purbaya Yudhi Sadewa has said BI should be able to lower its benchmark rate to 3.5% if inflation remains stable at 2.5%.
BI targets inflation within a 1.5% to 3.5% range. The September annual inflation rate was 2.65%.
($1=16,570.0000 rupiah)
Reporting by Gayatri Suroyo, Stefanno Sulaiman and Fransiska Nangoy; Editing by John Mair and Jacqueline Wong
Source: Reuters