Indonesia Unexpectedly Holds Rates, Hikes DFR, Cuts RRR

Bank Indonesia (BI) unexpectedly maintained its key interest rate at 5.75% for the fourth straight meeting on October 21, despite renewed pressure on the currency recently, defying expectations of a 25 bps hike. BI also kept the rate on its lending facility at 6.5% but raised the overnight deposit facility rate (DFR) by 25 bps to 5%. BI lowered banks’ reserve requirement ratio (RRR) to 7% from 9% for conventional banks and to 5.5% from 7.5% for Islamic banks. However, BI remained focused on keeping inflation within its target range while supporting GDP growth. BI raised rates by a total of 100 bps in May and June combined, bringing the policy rate to its highest level since April 2025 to attract foreign inflows and shore up the rupiah. The annual inflation rate accelerated to a three-month high of 3.28% in September, while core inflation eased to 2.84%. BI expects inflation to remain within its 2.5% ± 1% target range and has maintained its GDP growth forecast of 4.9%–5.7% for 2026.

Bank Indonesia (BI) maintained its key interest rate at 5.75% for the third straight meeting at its September 23 meeting, as expected, as the rupiah strengthened recently, boosted by capital inflows after volatility in the first half of the year. The decision underscored the central bank's concerns about rupiah stability under newly appointed Governor Destry Damayanti, while keeping inflation within the target range and supporting GDP growth. BI has raised rates by a total of 100 bps in May and June combined, bringing the policy rate to its highest level since April 2025 to attract foreign inflows and shore up the rupiah. The annual inflation rate accelerated to 3.19% in August but remained within BI's 1.5%–3.5% target range. BI expects inflation to remain within the government's 2.5% ± 1% target range and has maintained its GDP growth forecast of 4.9%–5.7% for 2026. BI also kept the rates on its overnight deposit facility and lending facility unchanged at 4.75% and 6.5%, respectively.

Bank Indonesia (BI) kept its key interest rate at 5.75% for the second straight meeting at its August 19 meeting, as expected, following a 50-bps hike in June to shore up the rupiah, which has strengthened recently. The decision came amid concerns about the central bank's independence from political influence following Perry Warjiyo's sudden resignation as BI chief last month and the appointment of Senior Deputy Governor Destry Damayanti as interim chief. BI has raised rates by a total of 100 bps since May, bringing the policy rate to its highest level since April 2025 to attract foreign inflows and shore up the rupiah. The annual inflation rate eased to 2.88% in July, remaining within BI's 1.5%–3.5% target range. BI expects inflation to remain within the government's 2.5% ± 1% target range and has maintained its GDP growth forecast of 4.9%–5.7% for 2026. BI also left the rates on its overnight deposit facility and lending facility unchanged at 4.75% and 6.5%, respectively.