Indonesia: Rupiah stability supports BI pause – DBS

DBS Group Research economist Radhika Rao notes Bank Indonesia (BI) kept its policy rate at 5.75% with Acting Governor Destry maintaining a neutral bias while flagging global risks. A strong domestic growth print and Indonesian Rupiah (IDR) stability underpin the decision. Policy risks are seen as externally driven, with domestic catalysts turning constructive as the government reinforces growth-supportive priorities for 2027 alongside fiscal consolidation.

BI holds rates as risks stay external

"Bank Indonesia left the policy rate unchanged at 5.75% yesterday, along expectations. Acting Governor Destry maintained a neutral bias but highlighted global risks."

"A firm 2Q domestic growth report and recent stability in the rupiah backed BI's decision to leave the benchmark rate on hold. Policy risks, at this juncture, are more external focused as the currency and bond market remain susceptible to geopolitical developments on elevated global oil as well as crack spreads, besides DM yields."

"Few changes were made to the measures announced in July, including an extension of the hedging discount to include FDI and foreign borrowings by domestic banks, in addition to portfolio investors. Add to this, a flexible rollover mechanism has been introduced to extend swaps based on the remaining life of underlying assets, subject to pre-conditions."

"Domestic catalysts have turned constructive after the government reinforced its growth-supportive focus for 2027, while maintaining fiscal consolidation (our note). We expect a rate pause in Sept, while maintaining one insurance hike in 4Q26 if financial conditions and sentiments weaken."

"Calming effect on US long-end rates (post buybacks) should relieve pressure on the backend of the regional rate curves."