Bank Indonesia Keeps Rates Steady, as Rupiah Weakness Threatens to Delay Easing

Why It Matters

Holding rates stabilises the rupiah but postpones monetary easing, which could dampen investment and growth if currency pressures linger. The outlook signals heightened risk for foreign capital and domestic consumption.

Key Takeaways

• BI holds rate at 4.75% to support rupiah
• Moody's shifts Indonesia outlook to negative
• Real rate gap with US narrowed over one percent
• Q4 GDP growth rose to 5.4% YoY
• Two 25bp cuts projected, timing remains uncertain

Pulse Analysis

Bank Indonesia’s decision to keep the policy rate at 4.75% reflects a delicate balancing act between curbing inflation and defending the rupiah. By anchoring rates, the central bank aims to limit currency volatility that has been amplified by fiscal‑deficit worries and mixed policy signals. This stance signals to markets that monetary policy will remain responsive to external shocks, even as domestic growth shows signs of resilience.

The downgrade of Indonesia’s credit outlook to negative by Moody’s, coupled with MSCI’s criticism of transparency, has intensified capital outflows. A narrowing real‑rate differential with the United States erodes the attractiveness of Indonesian assets, prompting foreign investors to pull back from both debt and equity positions. These dynamics exacerbate pressure on the rupiah, creating a feedback loop where weaker currency expectations further deter inflows, raising financing costs for the government and corporations alike.

Despite a robust 5.4% year‑on‑year GDP expansion in Q4, the central bank projects growth to hover between 4.9% and 5.7% for 2026, constrained by fiscal crowding‑out and muted transmission of rate cuts to bank lending. BI’s forward guidance of two additional 25‑basis‑point reductions hinges on currency stabilization; any delay could prolong a tighter monetary environment, limiting consumption and investment recovery. Stakeholders should monitor fiscal reforms, FX intervention effectiveness, and global rate trends as key determinants of Indonesia’s easing trajectory.

Bank Indonesia keeps rates steady, as rupiah weakness threatens to delay easing

19 February 2026 (Updated 28 minutes ago)

![Indonesia's central bank governor Perry Warjiyo]

Indonesia's central bank governor Perry Warjiyo

Bank Indonesia leaves policy rate unchanged

BI kept its policy rate unchanged at 4.75%, in line with our expectations. The decision underscores the central bank's focus on maintaining currency stability through FX intervention. The rupiah has been under pressure amid concerns over fiscal sustainability, with recent policy unpredictability and weaker communication unsettling foreign investors.

Rupiah weakness could persist, delaying rate cuts

Moody’s recently lowered Indonesia’s credit rating outlook to negative from stable, citing rising uncertainty in policy direction. This followed MSCI’s earlier comments on transparency shortcomings, which had already triggered a sharp equity‑market sell‑off and heightened investor sensitivity.

Real rate differentials between Indonesia and the US have narrowed significantly – by more than one percentage point in January 2026 compared with November 2025 – adding additional pressure on the rupiah. Alongside sizeable FII outflows from debt since September 2025, foreign‑investor appetite for Indonesian equities has also weakened in 2026, further weighing on the currency. Against this backdrop, we expect additional IDR depreciation as investor caution keeps FII inflows muted.

Recovery in GDP growth reduces urgency – but not the need – for easing

Indonesia’s GDP growth picked up to 5.4 % year‑on‑year in the fourth quarter, from 5.0 % in the third, supported mainly by stronger investment and consumption growth. However, we do not expect this momentum to be sustained through 2026. BI projects GDP growth in the 4.9–5.7 % range, while our own forecast sits towards the lower end of that band, as fiscal crowding‑out continues to suppress private investment and weak monetary‑policy transmission limits the pass‑through of BI’s rate cuts to bank‑lending rates, constraining a broader recovery in consumption.

Given this soft domestic‑growth outlook, we believe BI’s easing cycle is not yet complete. Once the currency stabilises, further rate reduction remains likely to support growth. We currently expect two additional 25 bp cuts in the first half of 2026, though the risks are skewed toward a delay.

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