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Bank Indonesia (BI) decided to maintain its seven-day repo rate at 6.00%, prioritizing the stability of its currency, the rupiah, over domestic factors such as slowing economic growth and declining inflation. According to a survey conducted by Reuters between December 9 and 13, this position reflects the institution’s efforts to manage an uncertain economic outlook, both internally and externally.
The impact of currency depreciation
Since its peak in September, the rupiah has recorded a decline of close to 6% against the US dollar. This significant setback has put monetary policy decisions in check. By maintaining the current interest rate, the central bank seeks to protect the national currency, prevent the impact of imported inflation and maintain investor confidence, in a global context marked by economic volatility.
Evolution of the rupiah in the last 6 months. Source: Google Finance
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Divided expectations among economists
Although Indonesia’s domestic indicators, such as cooling inflation and slower growth, would have allowed for a rate cut, the Reuters poll reflected mixed views. Of the 31 economists consulted, 17 predicted that BI would maintain its rate, highlighting a cautious view of external risks.
Look to the future
This decision aims for a short-term equilibrium, but raises questions about how the central bank will respond if economic growth continues to weaken. With Bank Indonesia’s next meeting on the horizon, a rate cut could be back on the table, especially if the rupiah manages to recover.
For now, the priority remains navigating a global economic environment filled with uncertainty.
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