Despite Rupiah's Sharp Slide... Indonesia Keeps Benchmark Rate on "Hold"

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Indonesia's central bank held its benchmark interest rate steady despite turmoil in financial markets following a warning from global index provider Morgan Stanley Capital International (MSCI) that it could downgrade the country's market status. While the need for a rate hike is growing, the decision is seen as giving priority to concerns about an economic slowdown.

A residential neighborhood in Indonesia on October 19, 2026. AFP-Yonhap News

According to Bloomberg on Oct. 21, Bank Indonesia held its benchmark interest rate at 5.75% per year. In an earlier Bloomberg survey, 19 of 38 economists (50%) expected the central bank to hold rates steady, while the remaining 19 (50%) expected a hike. The central bank raised rates by a total of 1 percentage point in three moves during May and June, then maintained its rate hold from July onward.

Bank Indonesia Governor Destry Damayanti described the global economic outlook as "subdued" but said her country's economy was "solid." She also added that the rupiah was under pressure from expectations of tighter U.S. monetary policy, the ongoing impact of the conflict in the Middle East, and foreign investors' sentiment toward the stock market.

The decision came as the rupiah fell to more than 18,000 per U.S. dollar. Foreign exchange markets were hit in a chain reaction after MSCI recently warned it could downgrade Indonesia's stock market status. MSCI warned that it could downgrade Indonesia by two levels, from an "emerging market (EM)" to a "standalone market." In the wake of the warning, Indonesia's stock market recently suffered its steepest fall in nearly 30 years, followed by successive shocks to the bond and foreign exchange markets.

Bank Indonesia is seen as planning to defend the currency's value through foreign exchange market intervention and support for currency risk hedging, rather than raising interest rates. Bloomberg reported, however, that if foreign capital outflows persist, pressure to raise rates could intensify at future monetary policy meetings.

This content was produced with the assistance of AI translation services.