Tariff worries have made the rupiah South-east Asia’s worst-performing currency this year
[JAKARTA] Bank Indonesia (BI) will strike a balance between encouraging currency stability and supporting economic growth, even as it looks for room to lower interest rates further next year, governor Perry Warjiyo said.
“In 2026, amid persistently high global uncertainty, monetary policy will remain focused on balancing stability and growth,” Warjiyo said during the central bank’s annual meeting in Jakarta on Friday (Nov 28). “Stability is vital for any country to achieve high and sustainable growth.”
BI will keep seeking space to cut its benchmark BI-Rate as inflation remains under control, Warjiyo said. It will also use macroprudential measures and other tools to boost South-east Asia’s largest economy in the face of global risks, including trade tensions and fragile markets.
The central bank expects Indonesia’s economy to expand 4.9 to 5.7 per cent next year and 5.1 to 5.9 per cent in 2027. That’s a steady increase from 2025, when it predicts that growth will come in above the midpoint of a 4.7 to 5.5 per cent range.
Throughout this year, BI has struggled with the balancing act between its dual mandates of rupiah stability and economic growth. The juggle has made the central bank’s monthly interest rate decisions harder to predict and have often caught the market by surprise.
Warjiyo said previously that BI was going “all out” to support growth along with the efforts of President Prabowo Subianto’s administration. However, after delivering 125 basis points of interest rate cuts this year, including three consecutive cuts from July to September, BI was faced with a depreciating rupiah. In its November decision last week, the monetary authority held the rate steady for a second month. The next policy meeting is set for Dec 17.
The governor pledged to continue BI’s currency stabilisation measures amid the global turmoil, including by intervening in onshore and offshore markets.
Tariff worries, compounded by doubts over the government’s fiscal discipline and policy rate easing, have made the rupiah South-east Asia’s worst-performing currency this year. It’s down more than 3 per cent, while the Malaysian and Thai currencies have gained. Overseas funds have also turned net sellers of Indonesian government bonds this year, intensifying downward pressure on the currency.
Thus far, Indonesian consumers and businesses have barely benefited from BI’s easing policy. Despite the aggressive easing since September last year, and an unprecedented US$12 billion cash injection by the government, bank lending rates have hardly fallen.
The central bank will continue to push banks to accelerate policy pass-through, after previously offering discounts to their reserve requirements. Synergies between BI, the government and financial institutions are key to improving Indonesia’s economic performance in the next two years, Warjiyo said.
Speaking after the governor’s address, Prabowo said that Indonesia had performed well in a difficult environment, and praised his economic team.
“Growth risks in 2026 have been managed and absorbed this year,” Coordinating Minister for Economic Affairs Airlangga Hartarto said at the same event. “All risks have been priced in this year, and next year we will see upside, with a baseline growth of 5.4 per cent.” BLOOMBERG
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