Bank Indonesia Holds Interest Rates Owing to Inflation

Bank Indonesia will keep its key policy rate unchanged at a meeting on February 20-21, citing low inflation and an improving currency outlook, according to a Reuters poll of economists who predict the first rate cut next quarter. Indonesia's inflation rate has remained within the central bank's target range of 1.5 percent to 3.5% since July, indicating that cumulative rate hikes of 250 basis points were effective.

Despite falling 1.4% against the dollar this year, the rupiah outperformed many of its peers. With inflation under control, the central bank can keep its policy unchanged in the near term.

All 30 economists polled from February 12-16 expected Bank Indonesia (BI) to maintain its benchmark seven-day reverse repurchase rate at 6.00 percent on Wednesday. According to median forecasts, interest rates will remain unchanged until at least the end of March, followed by a 25 basis point cut in each quarter to end the year at 5.25 percent.

This was consistent with the Federal Reserve's expectation of 75 basis points of rate cuts this year.

"We retain our forecast of the first rate cut by BI during the June meeting after the Fed makes its first rate cut announcement in May. We continue to maintain that BI policy decision is mainly influenced by the Fed actions and any delay by the Fed might delay BI rate action," said Kunal Kundu, economist at Societe Generale.