Bank Indonesia to Hold Rates This Month as FX Stability Outweighs Domestic Concerns: Reuters Poll

Bank Indonesia (BI) is expected to keep interest rates unchanged this month, as maintaining FX stability outweighs domestic concerns, according to a Reuters poll. The central bank's focus on stabilizing the rupiah exchange rate has been a top priority, particularly in the face of global economic uncertainty and geopolitical tensions. This decision aligns with the author's investment values, emphasizing stability, predictability, and consistent growth.

The Reuters poll of 25 economists predicted that BI would leave its benchmark interest rate at 6.00%, in line with the central bank's focus on maintaining the currency's stability. This move is expected to discourage capital outflows and support the rupiah's stability, which has been under pressure due to global uncertainties and geopolitical tensions. However, this approach may weigh on the domestic economy, as high interest rates can hinder growth and investment.



The rupiah has been weakening since early October, though it remains above lows hit earlier in 2024. The currency's depreciation has been driven by a stronger U.S. dollar, which has appreciated due to the U.S. Federal Reserve's rate-cutting cycle. As the U.S. election results and the incoming administration's policies become clearer, BI will persist in evaluating the feasibility of further rate cuts. However, the evolving global situation has resulted in BI's easing capacity becoming more limited than previously thought.



The stability of the Indonesian Rupiah is a crucial factor in Bank Indonesia's decision to maintain interest rates. The central bank has been focusing on maintaining the currency's stability, particularly in the face of global economic uncertainty and geopolitical tensions. By keeping interest rates steady, Bank Indonesia aims to preserve the value of the Rupiah and prevent excessive volatility, which could have detrimental effects on the domestic economy. This approach aligns with the author's investment values, emphasizing stability and predictability in investments.

The volatility of the FX market significantly impacts Bank Indonesia's ability to achieve its inflation targets and maintain economic stability. A strong rupiah exchange rate helps control inflation by making imports more expensive, thereby reducing domestic demand for foreign goods. However, a weak rupiah exchange rate can lead to higher inflation due to increased import prices. Therefore, BI must balance its monetary policy to manage both domestic and external factors, with a focus on maintaining FX stability to achieve its inflation targets.



Bank Indonesia (BI) is expected to maintain its benchmark interest rate at 6.00% this month, as predicted by 25 of 34 analysts polled by Reuters. This decision aligns with BI's focus on stabilizing the rupiah exchange rate, which has been under pressure due to global uncertainties and geopolitical tensions. The central bank aims to preserve the currency's value and maintain its competitiveness in the international market. By keeping interest rates steady, BI can discourage capital outflows and support the rupiah's stability. However, this approach may weigh on the domestic economy, as high interest rates can hinder growth and investment. BI must balance the need for FX stability with the desire to support domestic economic growth through lower interest rates. The central bank will likely continue to monitor both global and domestic dynamics to make informed decisions regarding monetary policy.



In conclusion, Bank Indonesia's decision to hold interest rates this month is largely influenced by the current state of the global economy, particularly the evolving dynamics in the United States. The U.S. election and its aftermath have led to heightened geopolitical and economic uncertainty, which has prompted BI to focus on stabilizing the rupiah exchange rate. The rupiah has been weakening since early October, though it remains above lows hit earlier in 2024. BI's top priority is to maintain the stability of the rupiah, and the prolonged high interest rates will likely weigh on the economy as its momentum is already slowing. The rupiah's recent depreciation has been driven by a stronger U.S. dollar, which has appreciated due to the U.S. Federal Reserve's rate-cutting cycle. As the U.S. election results and the incoming administration's policies become clearer, BI will persist in evaluating the feasibility of further rate cuts. However, the evolving global situation has resulted in BI's easing capacity becoming more limited than previously thought.