Bank Indonesia to hold rates at 4.75% through 2026 as Iran war fuels inflation risks: Reuters poll

Read a summary of this article on FAST.
Get bite-sized news via a new
cards interface. Give it a try.
Click here to return to FAST Tap here to return to FAST
FAST

BENGALURU, April 20 : Bank Indonesia (BI) is set to keep its key policy rate unchanged on Wednesday, according to all 31 economists polled by Reuters, with many paring bets for cuts this year as an Iran war-fuelled energy shock pushes up inflation and pressures the rupiah.

That marks a sharp shift in expectations after the central bank had signalled room for easing before the U.S.-Israel war with Iran erupted in late February, but abandoned its dovish stance in March as the conflict escalated.

With inflation at 3.48 per cent in March - near the upper end of BI's 1.5 per cent-3.5 per cent target range - and the currency down about 3 per cent this year after losing nearly 4 per cent in 2025 despite regular FX intervention, BI now has little choice but to stay on hold for longer.

All the economists polled during April 13-20 expected BI to keep its benchmark seven-day reverse repurchase rate unchanged at 4.75 per cent this week. The overnight deposit and lending facility rates were also seen steady at 3.75 per cent and 5.50 per cent, respectively.

CNA Games

Guess Word
Crack the word, one row at a time

Buzzword
Create words using the given letters

Mini Sudoku
Tiny puzzle, mighty brain teaser

Mini Crossword
Small grid, big challenge

Word Search
Spot as many words as you can
Show More
Show Less

While a hold this week seems a given, economists have largely abandoned expectations for cuts this year. All the 27 economists who provided views for the second quarter now see no change this quarter as well - a sharp reversal from March when 70 per cent predicted one or two cuts.

"Recent developments point increasingly towards no rate cut, driven by at least three factors: capital outflows that have pressured the rupiah, rising inflation expectations and higher government bond yields stemming from the war," said Elbert Timothy Lasiman, an economist at Bank Central Asia.

"Adding to this, markets now expect the Fed to keep rates on hold throughout the year."

The U.S. Federal Reserve's stance matters for BI because a higher fed funds rate tends to draw capital away from emerging markets like Indonesia, weakening the rupiah and limiting room for policy easing.

Looking ahead, more than 60 per cent of the economists - 17 of 27 - expected BI to leave rates unchanged this year, while nine forecast one or more cuts and one predicted a 25-basis-point hike. That marks a fundamental shift from the previous poll when almost all economists held rate-cut calls.

Median forecasts showed inflation at 3.0 per cent this year, compared to 2.7 per cent predicted before the war. The government has estimated it would need up to 100 trillion rupiah ($5.8 billion) in additional energy subsidies to help contain price pressures.

"Should the government decide to raise subsidised fuel prices, inflation could surge to as high as 5 per cent," said Timothy Lasiman.

Some other economists agreed this risk could push BI to hike rates this year at a time when the economy was expected to grow at around 5 per cent this year and next.

(Other stories from the Reuters global economic poll)

Newsletter

Week in Review

Subscribe to our Chief Editor’s Week in Review

Our chief editor shares analysis and picks of the week's biggest news every Saturday.

Sign up for our newsletters

Get our pick of top stories and thought-provoking articles in your inbox

Subscribe here

Get the CNA app

Stay updated with notifications for breaking news and our best stories

Download here

Get WhatsApp alerts

Join our channel for the top reads for the day on your preferred chat app

Join here