By Rahul Trivedi
BENGALURU, Jan 19 (Reuters) – Bank Indonesia will keep its key interest rate unchanged again on Wednesday to limit further weakness in the rupiah while continuing to press commercial banks to pass on the benefits of earlier rate cuts to borrowers, a Reuters poll of economists showed.
The central bank has paused its easing cycle since October as its focus shifted from supporting growth to stabilising the rupiah, which fell about 3.5% last year, making it one of Asia’s worst-performing currencies and prompting multiple interventions by BI.
Lavanya Venkateswaran, senior ASEAN economist at OCBC Bank, said “the persistent depreciation pressure we’ve seen on the currency… has not allowed BI any wiggle room in the near term to try and support growth”.
Limited pass-through by banks on commercial lending rates from earlier rate cuts, combined with this currency weakness, has left policymakers with little room to ease further.
Pressure on the currency has been compounded by persistent foreign outflows from local debt markets, with ANZ Research estimating overseas investors pulled about $6.5 billion from Indonesia’s sovereign bond market last year and remained mostly net sellers over the past six months.
Economists said concerns over Indonesia’s fiscal position have exacerbated those outflows, as investors worry President Prabowo Subianto’s populist spending plans since he came to power in 2024 could undermine fiscal credibility.
At 2.92% of GDP, the 2025 budget deficit was the widest in at least two decades outside the pandemic years and close to the statutory cap of 3% of GDP.
All 26 economists polled from January 13 to 19 expected BI to leave its benchmark seven-day reverse repurchase rate unchanged at 4.75% on January 21, with the overnight deposit and lending facility rates also seen steady at 3.75% and 5.50%, respectively.
Bank lending rates only fell by 24 basis points to 8.96% through November from 9.20% at the start of 2025, despite BI cutting policy rates by a cumulative 150 basis points since September 2024.
BI has repeatedly urged commercial banks to lower borrowing costs and has offered additional reserve requirement cuts for banks that reduce lending rates more aggressively. But credit demand remains weak.
While a continued pause in the rate cycle appeared certain this month, a majority of economists, 12 of 23, expected BI to cut rates by 25 basis points to 4.50% by the end of the first quarter, while 11 forecast no change.
A similar proportion, 12 of 22 economists, expected rates to fall to 4.25% by the end of the second quarter, while ten saw either smaller cuts or no change. The median forecast showed rates holding at 4.25% for the rest of 2026.
“We are still expecting two more cuts before they reach the terminal rate, even though fiscal policy may have temporarily boosted some economic activity. Structurally, consumption still remains quite soft,” said Adam Ahmad Samdin, economist at Oxford Economics.
The poll showed Indonesia’s economy likely grew about 5% in 2025 and was expected to expand at a similar pace this year and next, while inflation was forecast to stay within the central bank’s 1.5%-3.5% target range through 2026.
(Other stories from the January Reuters global economic poll)
(Reporting by Rahul Trivedi; Polling by Susobhan Sarkar and Pranoy Krishna; Editing by Vivek Mishra, Ross Finley and Jan Harvey)
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