Bank Indonesia to hold rates steady on March 19, cut in Q2: Reuters poll

BENGALURU : Bank Indonesia will hold interest rates steady on Wednesday to protect the rupiah from further depreciation amid growing global trade tensions, but is expected to cut them next quarter to prop up economic growth, a Reuters poll found.

Although Southeast Asia's largest economy grew just over 5 per cent in 2024 - broadly mirroring the previous year's pace - it marked the slowest expansion in three years and was far below President Prabowo Subianto's 8 per cent target.

Last month, BI Governor Perry Warjiyo acknowledged the need to spur growth. However, with the rupiah down about 2 per cent so far this year despite regular forex intervention, the central bank - mandated to keep the currency stable - is unlikely to shift its focus to growth at this meeting.

More than 60 per cent of economists, 19 of 31, in the March 10–17 Reuters poll predicted the central bank would keep its benchmark seven-day reverse repurchase rate at 5.75 per cent on Wednesday. The remaining 12 respondents expected BI to cut rates by 25 basis points.

The overnight deposit and lending facility rates were also expected to remain at 5.00 per cent and 6.50 per cent, respectively.

"Similar to the February meeting, conditions for a cut... are not favourable. There has been renewed weakness in the rupiah. ... Against this challenging backdrop, we think that BI will wait it out for the next rate cut," said Sanjay Mathur, chief economist for Southeast Asia and India at ANZ. "As such, the rate-cutting cycle remains intact, but the timing of each rate cut would depend on FX stability."

Median forecasts predicted a 25 basis point cut to 5.50 per cent next quarter, but there was no clear consensus among economists, reflecting the uncertainties about President Donald Trump's trade policies.

The rising risk of higher inflation in the U.S. due to Trump's erratic tariffs is expected to keep the Federal Reserve on hold for months, forcing BI to prioritise currency stability amid heightened risks of capital outflows from emerging market economies.

"Global uncertainty, particularly concerning the inward-looking and protectionist policies of the U.S., will persist and may even intensify," said Josua Pardede, chief economist at Permata Bank.

"In financial markets, the repercussions of trade war risks have already been felt, as many investors have adopted a risk-off approach, leading to capital outflows," Pardede added. "This will inevitably impact the stability of the rupiah exchange rate."

(Other stories from the March Reuters global economic poll)