Indonesia: Rupiah stability supports BI pause – DBS

Indonesia's Bank Indonesia (BI) maintained its policy rate at 5.75% in its latest decision, with Acting Governor Destry expressing a neutral bias while acknowledging global risks. The central bank's decision to keep the benchmark rate on hold was bolstered by strong domestic growth figures and stability in the Indonesian Rupiah (IDR).

The policy risks were predominantly external, with the currency and bond markets remaining vulnerable to geopolitical developments, elevated global oil prices, crack spreads, and U.S. yields. The government has reinforced its growth-focused approach for 2027 while pursuing fiscal consolidation. The central bank has extended its hedging discount to include foreign direct investments and foreign borrowings by domestic banks, along with a flexible rollover mechanism for swaps based on the remaining life of underlying assets.

It is anticipated that the central bank will pause its rate hike in September, with a possible one insurance hike in the fourth quarter of 2026 if financial conditions or market sentiments deteriorate. The easing of pressure on regional rate curves is expected due to the calming effect on US long-end rates following buybacks. Meanwhile, global markets witnessed fluctuations with GBP/USD clinging to gains, EUR/USD showing modest losses, and gold slipping below $4,500.

Cryptocurrencies, particularly Bitcoin and Ethereum, continued to gain momentum, while the US Treasury announced a significant increase in the size of long-dated debt buybacks, easing the recent surge in yields.