Bank Indonesia has kept its benchmark seven-day reverse repurchase rate unchanged at 5.75%, a move that defied widespread market expectations for another interest rate hike.
The decision marks a pause in the central bank’s aggressive tightening cycle, which had seen a cumulative 100 basis point increase since May aimed at attracting foreign capital and stabilizing the rupiah.
The hold suggests policymakers believe the recent rate hikes have sufficiently addressed currency pressures, or that further tightening could outweigh the benefits for domestic growth.
This shift in stance comes as global financial conditions have eased, with softer US inflation data recently reducing expectations for further Federal Reserve rate hikes.
The cooler US print has provided some relief to emerging market currencies, potentially reducing the urgency for Bank Indonesia to maintain a steep interest rate differential.
Indonesia’s benchmark stock index, the IHSG, had closed higher earlier in the week as investors digested the favorable US inflation data.