Bank Indonesia Pauses Easing Cycle, but Says More Cuts to Come

Indonesia's central bank kept interest rates steady on Wednesday, emphasizing its focus on stabilizing the rupiah currency amid global uncertainties, but said further easing to prop up economic growth is only a matter of timing. 

The benchmark 7-day reverse repurchase rate was held steady at 5.75%, as expected by 26 out of 35 economists polled by Reuters. The remaining nine had predicted a cut. Bank Indonesia also left its two other policy rates unchanged. 

Wednesday's decision followed a rate cut in January that markets had not expected. In the current cycle, BI has cut rates twice since September. 

Southeast Asia's largest economy grew 5.03% in 2024, roughly similar to the previous year and in line with expectations, but the pace was the slowest in three years and far behind President Prabowo Subianto's 8% target. 

Meanwhile, the strong U.S. dollar and global trade disputes have put pressure on the rupiah and other emerging market currencies. 

Acknowledging that inflation was low and the domestic economy needed stimulus, Governor Perry Warjiyo said there is room for BI to cut interest rates further, but the timing depends on global dynamics. 

Uncertainty regarding U.S. trade policy, the U.S. fiscal deficit, rising treasury yields as well as the Federal Reserve's monetary easing path was the main consideration to keep rates unchanged for now, he said. 

"We still see room for further interest rate cuts ... As for the timing, we must consider global dynamics," Warjiyo told a press conference. 

"We fully support the government's programs. We are with the government, we want high economic growth," he added. 

Warjiyo said BI has intervened nearly everyday to support the rupiah , which this month fell to its weakest against the U.S. dollar since June last year. 

However, he noted the rupiah has been largely stable against its peers and currencies of the country's main trading partners, predicting it would get further support from the government's policy mandating a one-year retention of proceeds from companies' resource exports. 

"We view this (Wednesday's decision) as a temporary pause driven by global uncertainty and rupiah underperformance, with borrowing costs likely to decline further in first half of the year," said DBS economist Radhika Rao. 

Capital Economics said BI appeared "a little more hawkish" than during the January meeting, but the consultancy still expects 150 basis points of rate cuts this year. 

"Importantly, Governor Warjiyo defined currency stability as a stable exchange rate relative to its peers, and not just against the U.S. dollar," Gareth Leather, the consultancy's senior Asia economist, wrote in a note to clients. 

Source: Reuters 

IKN’s Budget Bumped to IDR 14Tn Despite Broader Cuts

On Wednesday, House Commission II greenlit an additional IDR 8.1 trillion (USD 520 million) for the megaproject, bringing the total 2025 allocation to nearly IDR 14 trillion. 

The House of Representatives has approved a substantial budget increase for the construction of the planned future capital of Nusantara in East Kalimantan, despite government-wide spending cuts that have affected ministries and agencies across the board.  

On Wednesday, House Commission II greenlit an additional IDR 8.1 trillion (USD 520 million) for the megaproject, bringing the total 2025 allocation to nearly IDR 14 trillion.  

Nusantara Capital City (IKN) Authority head Basuki Hadimuljono said on Wednesday that the request for the top-up had been endorsed by President Prabowo Subianto and that he had also formally conveyed the idea to the Finance Ministry and State Secretariat. 

“President Prabowo and his ministers have asked us to prepare the proposal [for the additional budget],” Basuki told reporters after a meeting with House Commission II on Wednesday.  

The budget was to be used for phase two of construction, Basuki said, focusing on the legislative and judicial complexes and supporting infrastructure, as well as to fund building maintenance. 

President Prabowo had, in a closed-door meeting on Jan. 21, agreed to set aside a total budget of IDR 48.8 trillion for Nusantara’s development over the next five years.  

A day later, he instructed ministries, agencies and regional leaders to cut a combined IDR 306.7 trillion in spending in 2025, as the administration seeks additional funds to support the President’s flagship free nutritious meals program and other costly initiatives.  

The decision led to spending reviews across sectors, including the IKN Authority.  

Under the Jan. 22 instruction, the IKN Authority was to face a IDR 4.58 trillion cut, but after a meeting with the Finance Ministry on Tuesday, the figure was revised down to just IDR 1.15 trillion. The changes were labeled a “reconstruction” of the initial budget cuts.  

Altogether, the IKN Authority’s budget was trimmed from IDR 6.3 trillion to IDR 5.15 trillion, though its head Basuki said on Wednesday that he was expecting to see additional funding increase its total to almost IDR 14 trillion.  

Prabowo has on multiple occasions publicly backed the continued construction of Nusantara, but he has not shown as much interest in accelerating its completion since taking office late last year.   

His five-year budget commitment for the future capital city project pales in comparison to the IDR 75 trillion allocated from 2022 to 2024 under former president Joko “Jokowi” Widodo, who championed Nusantara’s development.   

Instead, the Prabowo administration has prioritized his flagship free nutritious meals program, as well as other priority initiatives.  

The free meals program was originally granted a budget of IDR 71 trillion, but multiple officials have signaled it could rise to over IDR 171 trillion as the government aims to accommodate 82.9 million beneficiaries by the end of the year. 

Speculation about Prabowo’s possible U-turn on Nusantara’s development intensified after Public Works and Housing Minister Dody Hanggodo told reporters on Feb. 5 that the megaproject had yet to make any progress this year, noting that the Finance Ministry had frozen the funds needed for its construction.  

Two days later, presidential spokesperson Hasan Nasbi said that even though parts of Nusantara’s budget had been frozen, the government remained committed to continuing the project as the budget remained officially allocated.  

From its inception to 2024, the government spent a total of IDR 89 trillion on the Nusantara project.  

Recent allocations suggest the state budget may contribute more than initially projected, as taxpayers were initially supposed to contribute just IDR 93 trillion, or 20% of the estimated IDR 466 trillion price tag to build Nusantara.  

The rest was to be supplied by the private sector and state-owned enterprises (SOEs), as well as public-private partnership (PPP) schemes.  

SOE and private investments totaled IDR 58.4 trillion, while PPP-funded projects secured IDR 60 trillion, ministry data showed on Wednesday. 

Source: The Jakarta Post 

Indonesia’s Forex Reserves to Soar USD 80 Billion as Exporters Must Keep Proceeds Onshore

President Prabowo Subianto revealed Monday that Indonesia’s foreign exchange reserves would skyrocket by tens of billions of American dollars this year as the government would soon require all resource exporters to hold its proceeds onshore. 

In about two weeks from now, all resource exporters must keep 100% of their earnings within the Indonesian financial system for at least a year. Chief Economic Affairs Minister Airlangga Hartarto had been dropping hints of this policy over the past month.  

Speaking in a televised press conference, Prabowo announced that he had inked the policy, saying that Indonesia needed to make such a move so that the country could make the most out of its resource abundance. The policy will come into force on March 1. Within nine months since its entry into force, Indonesia is expected to bring about at least USD 80 billion in additional foreign reserves this year. 

“We have to make the best use of our natural resources to prosper our nation, … including by increasing our foreign reserves and boosting the stability of our exchange rate. … This new policy can add USD 80 billion to our foreign exchange reserves this year. It can also generate up to USD 100 billion in additional foreign exchange if the policy is in place for a full year,” Prabowo said. 

Bank Indonesia recently reported that the country’s foreign exchange reserves stood at USD 156.1 billion by the end of January 2025, up from USD 155.7 billion registered in the previous month. According to Prabowo, many resource exporters today have been holding their proceeds in foreign banks overseas, thus benefiting other countries instead. Resource-rich Indonesia at present only requires exporters to deposit 30 percent of their export proceeds in domestic bank accounts for at least 3 months.  

The upcoming policy will apply to exporters in the mining, plantation, forestry, and fishery sectors. Oil and gas exporters will be exempted from the rule changes, but will still have to comply with the current 30-percent proceeds mandate.  

Prabowo said that he would give room for exporters to use the deposited earnings to fund their businesses. They may convert the funds to rupiahs in the same banks to support their operational activities. They can also use the foreign exchange money to pay taxes and dividends. They may also use the proceeds to procure goods and services that are unavailable in the country. However, administrative sanctions await those who fail to comply. 

“We will suspend the export services for those who break the rules,” Prabowo told the press. 

The Central Statistics Agency (BPS) data showed Indonesian exports stood at nearly USD 21.5 billion in January 2025. Exports had gone down by around 8 percent from the USD 23.5 billion recorded at the end of December. 

Source: Jakarta Globe