Indonesia Holds Rates Steady as New Governor Prioritises Rupiah Stability

Indonesia's central bank left its benchmark interest rate unchanged on Wednesday, marking the second consecutive policy meeting without a move. The decision, taken under the leadership of interim governor Destry Damayanti, reflects the bank's continued focus on stabilising the rupiah while keeping inflation within its official target.

Damayanti, previously the bank's deputy governor, assumed the top role following the surprise resignation of Perry Warjiyo last month. She has been nominated for the permanent governorship and is expected to secure parliamentary approval in the coming weeks.

Warjiyo's abrupt exit reignited concerns about the central bank's independence. Those worries were amplified by President Prabowo Subianto's appointment of his nephew, Thomas Djiwandono, as deputy governor in January, and by June legislation that strengthened the bank's mandate to support economic growth.

The rupiah, which initially dipped after Warjiyo's departure, has since recovered somewhat. Still, it remains the worst-performing emerging Asian currency this year, down 7% against the U.S. dollar. Investor sentiment has been weighed down by concerns over government spending, a controversial commodity export policy, and broader risk aversion tied to the Middle East conflict.

The central bank has framed its recent rate hikes as a dual-purpose measure: attracting capital inflows and acting pre-emptively to keep inflation within a 1.5% to 3.5% target range through 2027. July data showed annual inflation at 2.88%, comfortably inside that band.

To support economic activity, the bank has also introduced a liquidity incentive programme aimed at encouraging commercial banks to maintain lending.

The bank maintained its 2026 GDP growth projection of 4.9% to 5.7%. Official data released this month showed Southeast Asia's largest economy expanded 5.3% in the second quarter. President Prabowo, who has set an ambitious 8% growth target by 2029, told parliament last week he expects the economy to grow 6% this year.