By Ying Xian Wong


Indonesia's central bank caught markets off guard with a surprise rate cut, upending expectations that it would keep policy settings on hold to help stabilize the rupiah.

Bank Indonesia cut its benchmark seven-day reverse repo rate to 5.75% on Wednesday, snapping a three-meeting run of standing pat. It lowered its overnight deposit facility rate to 5.25% and lending facility rate to 6.50%.

All seven economists polled by The Wall Street Journal had forecast a hold.

The rupiah weakened after the unexpected decision, with the USD/IDR pair rising 0.3% to 16,335.00.

Bank Indonesia Gov. Perry Warjiyo said at a press conference that the decision was consistent with the bank's 2025-2026 inflation target of 1.5%-3.5%, and its mandate of maintaining rupiah stability and sustaining economic growth.

Warjiyo said the rupiah exchange rate is under control even amid high global uncertainty, thanks to the BI's stabilization policy.

As of Jan. 14, the rupiah had depreciated by 1% compared to the end of 2024.

Continued weakness in the Indonesian currency amid dollar strength and trade uncertainty ahead of President-elect Trump's inauguration had pared back market expectations for more easing from the central bank.

"BI is among the most sensitive central banks in the region to foreign-exchange depreciation risks, and its cutting cycle has been severely constrained by a weakening IDR," Nomura analysts had said in a report prior to Wednesday's meeting.

Even with Indonesia's inflation close to target and growth momentum losing some steam, many economists had thought the central bank would prioritize currency stability. Some had even projected that it could keep rates on hold through the year, a reversal from the predictions around September last year when Bank Indonesia started its easing cycle.

Maybank analysts said they expect Bank Indonesia to intervene in markets to stabilize the rupiah, noting that the rise in oil prices driven by U.S. sanctions on Russia pose downside risks to the rupiah as Indonesia is a net oil importer.


Write to Ying Xian Wong at yingxian.wong@wsj.com


(END) Dow Jones Newswires

01-15-25 0301ET