Bank Indonesia Holds at 4.75%, Flags Room for Future Cuts

JAKARTA, Investortrust.id — Bank Indonesia kept its benchmark interest rate unchanged at 4.75% after its Feb. 18–19 policy meeting, aligning with economists’ expectations that easing now could intensify capital outflows and currency pressure but leaving the door open for further easing.

The central bank said the decision was “consistent with the current policy focus on strengthening rupiah stabilization amid still-high global financial market uncertainty” while supporting its 2026–2027 inflation target and economic growth.

The Deposit Facility rate was maintained at 3.75% and the Lending Facility rate at 5.50%.

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Stability Over Stimulus

The hold comes amid renewed investor concerns following MSCI’s warning over free-float issues and Moody’s downgrade of Indonesia’s sovereign outlook to negative.

“Pressure arising from MSCI’s warning regarding free-float issues, combined with Moody’s revision of Indonesia’s sovereign outlook from stable to negative, has the potential to raise risk premiums and increase volatility in capital flows,” said Josua Pardede, chief economist at Bank Permata.

He said Bank Indonesia would likely prioritize exchange-rate stability over near-term easing.

“As a result, room for policy rate cuts remains limited at least until external pressures subside and market sentiment improves,” he said.

Teuku Riefqy, a researcher at the Institute for Economic and Social Research at the University of Indonesia, noted that Indonesia recorded cumulative capital outflows of $1.06 billion over the past 30 days.

“Capital outflows and rising yields have tended to be limited following the Moody’s announcement,” he said, adding that Bank Indonesia had “actively increased its holdings of government bonds to reduce exchange-rate pressure.”

“As a result, rupiah depreciation has been relatively contained,” he said.

The rupiah remains under pressure year to date, even as Bank Indonesia described the currency as “undervalued compared with Indonesia’s economic fundamentals.”

Inflation Still Anchored

Inflation remains within reach of the central bank’s 2.5±1% target band, despite a temporary pickup.

Consumer prices rose 3.55% year over year in January, up from 2.92% in December, largely due to base effects from electricity tariff discounts in early 2025.

Core inflation stood at 2.45%, reflecting what the bank described as an economy still operating below full capacity.

The central bank said it is “confident that annual inflation in 2026 and 2027 will decline and remain within the target range,” supported by anchored expectations and controlled imported inflation.

Still, upcoming Ramadan and Eid al-Fitr demand could test price stability, narrowing room for aggressive easing in the near term.

Liquidity and Credit

Bank Indonesia has already eased significantly, cutting its benchmark rate by 150 basis points since September 2024.

Liquidity has also been expanded through reductions in outstanding central-bank securities and measured purchases of government bonds.

Yet officials acknowledged that transmission to bank lending rates has been uneven.

While interbank and bond yields have declined sharply, deposit rates have fallen only modestly and loan rates have edged down by just 40 basis points since early 2025.

“The reduction in deposit rates needs to be transmitted further to lending rates,” the bank said, adding that efforts must be intensified “to promote higher credit growth in support of sustainable economic expansion.”

Credit growth reached 9.96% year over year in January, driven by a surge in investment loans.

The central bank projects lending growth of between 8% and 12% this year, supported by strong liquidity and macroprudential incentives.

Digital Momentum

Digital transactions continue to expand at a rapid clip. Payment volumes rose nearly 40% year over year in January, with QRIS transactions more than doubling.

BI-FAST processed 455 million retail transactions worth Rp1,176 trillion in January alone, underscoring the deepening of Indonesia’s digital payments ecosystem.

As it fine-tunes rates, Bank Indonesia is also preparing for seasonal liquidity pressures ahead of Ramadan and Eid al-Fitr, pledging to ensure sufficient cash supply nationwide.

For now, policymakers appear content to wait, defend the rupiah and allow earlier easing to work through the system. But their signal was unmistakable: if inflation remains contained and capital flows stabilize, the easing cycle may yet resume.