Bank Indonesia Holds BI-Rate Amid Split Market Expectations
Bank Indonesia kept the BI-Rate at 5.75% in October, extending its fourth consecutive hold after cumulative hikes of 100bp between May and June. The decision came against a split market view: in a Bloomberg survey, about half of 38 analysts expected no change, while the remainder looked for at least a 25bp increase, following concerns around IDR weakness, capital outflows and MSCI’s warning that Indonesia could be shifted from emerging-market to standalone status.
Alternative Measures and Market Response
Instead of lifting the benchmark rate, BI tightened some liquidity settings to support the rupiah while aiming to preserve growth. It raised the overnight Deposit Facility rate by 25bp to 5.00%, while cutting the reserve requirement ratio by 200bp in two steps to 7% by December, and expanded hedging incentives via domestic non-deliverable forwards. Even so, USD/IDR moved back above 18,000 after the announcement and the currency is down 7.3% year-to-date; the hedging measures have drawn USD9.9bn of foreign inflows since June, but broader pressures include portfolio outflows, a widening current-account deficit and elevated global yields.
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