The Indonesian Central Bank considers maintaining a stable exchange rate a priority, with the policy interest rate held at 4.75%

Indonesia’s exchange rate trend has become a key focus for the Bank of Indonesia recently. According to the latest analysis from BNY Mellon, the central bank will maintain its policy interest rate at 4.75% in the near term and continue with a relatively accommodative stance. Notably, the central bank’s focus has shifted from solely pursuing economic growth to a more balanced goal—ensuring the stability of the Indonesian rupiah.

Strategic Adjustment in Central Bank Stance

The change in the Bank of Indonesia’s attitude reflects new challenges in the current economic situation. The central bank has recognized that, amid increasing global economic volatility, maintaining the stability of the domestic currency exchange rate is crucial for the overall economy. This shift is no longer a passive response but an active policy choice. Analysts suggest that the bank may increase foreign exchange market interventions to ensure the rupiah fluctuates within a reasonable range.

Multiple Factors Supporting the Rupiah

The relative stability of the rupiah is not accidental but the result of multiple factors working together. First, high domestic lending rates continue to attract foreign capital, maintaining demand for the rupiah. Second, the decline in production of strategic commodities like nickel, while seemingly negative, actually indirectly supports the rupiah by reducing foreign exchange supply and increasing the relative scarcity of the currency. These structural factors, combined with the central bank’s policy intentions, create a reinforcing effect.

Lagged Effects of Foreign Exchange Interventions

The central bank’s close monitoring of local asset markets and corresponding foreign exchange interventions are important tools for stabilizing the rupiah. However, the actual effects of these policies are not immediate. Central bank officials believe that the impact of such tools often takes time to fully transmit to the market. Early on, market participants may underestimate their effects. Therefore, investors should not focus solely on short-term fluctuations when evaluating the central bank’s policies but should understand their long-term goal of maintaining rupiah stability.