Indonesia holds rates steady, signals Iran war limits room for cuts

Read a summary of this article on FAST.
Get bite-sized news via a new
cards interface. Give it a try.
Click here to return to FAST Tap here to return to FAST
FAST

JAKARTA, March 17 : 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 per cent, 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 per cent and 5.50 per cent, 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.

CNA Games

Guess Word
Crack the word, one row at a time

Buzzword
Create words using the given letters

Mini Sudoku
Tiny puzzle, mighty brain teaser

Mini Crossword
Small grid, big challenge

Word Search
Spot as many words as you can
Show More
Show Less

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 per cent in February, above BI's target range of 1.5 per cent to 3.5 per cent. 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 per cent to 5.7 per cent.

Newsletter

Week in Review

Subscribe to our Chief Editor’s Week in Review

Our chief editor shares analysis and picks of the week's biggest news every Saturday.

Sign up for our newsletters

Get our pick of top stories and thought-provoking articles in your inbox

Subscribe here

Get the CNA app

Stay updated with notifications for breaking news and our best stories

Download here

Get WhatsApp alerts

Join our channel for the top reads for the day on your preferred chat app

Join here