Indonesia's central bank unexpectedly held interest rates steady on Wednesday as it assessed the effects of previous tightening moves amid a weakening currency and ongoing tensions in the Middle East.
Bank Indonesia kept its benchmark seven-day reverse repo rate unchanged at 5.75%, taking a breather after delivering a cumulative 100 basis points of rate increases in May and June.
Six of the nine economists polled by The Wall Street Journal had forecast a 25-basis-point increase. The other three had expected the central bank to hold rates steady.
The central bank also maintained its overnight deposit facility rate at 4.75% and its lending facility rate at 6.50%.
The decision was part of a broader policy mix aimed at supporting the rupiah amid elevated global uncertainty while keeping inflation within the 1.5%-3.5% target range in 2026-2027, Gov. Perry Warjiyo said at a press conference.
The central bank expanded incentives and other measures to attract foreign portfolio inflows, deepen money and foreign-exchange markets and improve liquidity, he said.
The decision came despite mounting external pressure, with the rupiah hovering near record lows against the dollar after shedding roughly 7% this year.
Renewed U.S.-Iran hostilities and threats to shipping through the Strait of Hormuz have revived fears of a global energy-supply shock.
Gov. Warjiyo added that macroprudential and payment-system policies would remain focused on supporting growth while maintaining financial stability.
Some economists see Wednesday's decision as marking the end of Bank Indonesia's tightening cycle, though renewed pressure on the rupiah could prompt further rate increases.
Capital Economics expects the benchmark rate to remain unchanged for the rest of the year. Contained inflation and domestic pressure to support growth following changes to the central bank's mandate should reduce the need for further tightening, economist Jason Tuvey said.
Rather than raise rates, Bank Indonesia is likely to focus on policy incentives aimed at attracting foreign capital and supporting the currency, he said.
Renewed pressure stemming from Middle East tensions or domestic policy concerns could prompt further rate increases, he added.
Barclays echoed that view, saying the rupiah's recent stabilization should reassure policymakers that exchange-rate pressures have eased.
Economist Brian Tan expects the central bank to begin taking a more dovish stance in March 2027, though the timing will depend on sustained rupiah stability.
Write to Ying Xian Wong at yingxian.wong@wsj.com
(END) Dow Jones Newswires
July 22, 2026 05:11 ET (09:11 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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