Indonesian Rupiah: Policy continuity supports currency – Societe Generale

Societe Generale analysts Galvin Chia and Kunal Kundu note that Bank Indonesia kept the BI rate at 5.75%, with deposit and lending facility rates unchanged, reinforcing Rupiah stability and inflation control. They see the decision as marginally positive for IDR FX and yields, while highlighting a prudent but uncomfortable policy pause constrained by external uncertainty and a fragile Rupiah.

BI hold seen as Rupiah supportive

"BI left the BI rate unchanged at 5.75%, in line with our expectations. Deposit and lending facility rates were also unchanged at 4.75% and 6.50% respectively."

"Crucially, Gov-nominee Destry delivered her first policy meeting without surprises and with a strong nod towards policy continuity. In a market that has seen a string of negative policy surprises over the last 12 months, a steady outcome today and at last week’s Presidential budget speech have proven to be incremental positives."

"For markets, we think today’s decision was well received overall, and remains marginally positive for IDR FX and yields."

"In general, it reinforces BI’s commitment to rupiah stability amid global volatility and keeps inflation anchored within the 2.5% ±1% target, while complementary liquidity and macroprudential measures can continue supporting credit and growth."

"In essence, today’s hold is consistent with the same reaction function BI has been using: protect the rupiah, keep inflation within target, and weigh external financial conditions against domestic growth."

"That said, the decision highlights BI’s policy bind, with a fragile rupiah and external uncertainty effectively limiting monetary support for the domestic economy."

"If currency pressure persists or food inflation rises during the dry season, BI could face renewed needs for policy tightening despite the associated growth cost."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)