Bank Indonesia (BI) will likely maintain its key interest rate at 4.75%, aiming to stabilize the rupiah. A Reuters poll of economists shows that all 26 surveyed expect BI to hold its rates during the meeting on January 21, 2026. The central bank paused its easing cycle in October 2025, shifting its focus from supporting growth to stabilizing the currency.
Challenges from Rupiah Weakness and Outflows
The rupiah dropped about 3.5% in 2025, making it one of Asia’s worst-performing currencies. BI has intervened multiple times to support the rupiah. However, continued depreciation pressures persist. Foreign outflows have added to the situation, with an estimated $6.5 billion pulled from Indonesia’s sovereign bond market last year. Foreign investors have remained net sellers over the past six months.
Impact of Fiscal Concerns on Currency Stability
Concerns over Indonesia’s fiscal health also contribute to these outflows. Economists worry that President Prabowo Subianto’s populist spending policies may harm the country’s fiscal credibility. The 2025 budget deficit, projected at 2.92% of GDP, is the largest in two decades and adds pressure on the rupiah.
BI’s Efforts to Support Growth Amid Currency Weakness
Despite these challenges, BI continues urging commercial banks to pass on the benefits of earlier rate cuts. However, banks have been slow to reduce lending rates, leaving BI with limited options for further easing. As a result, Indonesia’s economy is expected to grow by around 5% in 2025, with inflation staying within BI’s target range of 1.5%-3.5%.
Expectations for Future Rate Cuts
While BI is expected to hold rates steady in January, most economists predict a 25 basis point rate cut by the end of Q1 2026. Some experts believe BI may lower rates further to 4.25% by Q2 2026. They expect the terminal rate to remain at 4.25% for the rest of the year.
