Indonesian Rupiah: Stability-focused BI stance – UOB
UOB economist Enrico Tanuwidjaja notes that Bank Indonesia (BI) kept the BI Rate at 5.75% in August, prioritizing Rupiah and macro-financial stability over growth.
Bank Indonesia (BI) maintained its key interest rate at 5.75% in August, with a primary focus on preserving the stability of the Indonesian Rupiah and managing external risks, according to UOB economist Enrico Tanuwidjaja. Acting Governor Damayanti emphasized that maintaining the rupiah's value amidst heightened global financial market volatility is the main priority, aiming to keep inflation within the central bank's target range of 2.5% ±1% for 2026-2027.
The decision was anticipated by markets and unanimously supported by surveyed economists, as BI's strategy appears to prioritize rupiah stability and external risk management over growth support during a period of global uncertainty and capital flow volatility. The central bank's communication suggests it will maintain relatively tight monetary conditions until global risk sentiment improves, which may lead to a pause in rate hikes.
While acknowledging the need for further rate hikes, the forecast has been adjusted to just two additional 25 basis points hikes in the fourth quarter of 2026, aiming to anchor rupiah's stability and inflation expectations. The policy stance remains cautious, with currency stability continuing to take precedence over growth support in the current global environment.
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