(March 19): Indonesia’s central bank may hold its key interest rate unchanged to support the rupiah, opting for stability after the nation’s veteran finance minister was forced to deny resignation rumors that sent stocks tumbling.

Bank Indonesia is expected to hold the BI-Rate at 5.75% for a second straight meeting on Wednesday, according to 27 of 38 economists in a Bloomberg News survey. But 11 analysts forecast another quarter-point reduction to 5.5%.

The Bank Indonesia decision comes a day after local stocks tumbled 3.8% as rumours that Minister of Finance Sri Mulyani Indrawati would resign added to concerns about the fiscal outlook and the impact of global trade tensions. Late Tuesday, at a briefing in Jakarta, Indrawati denied she planned to quit.

“I reiterate that I am here, I am standing here, and I am not stepping down,” said Indrawati, a former academic and World Bank managing director who has been finance minister for three different presidents. “I remain focused on carrying out the president’s duties and trust to manage state finances professionally.”

After her briefing, Barclays plc economist Brian Tan said he still sees a rate pause in the cards on Wednesday. “The apparent relief that some market participants are feeling from reassurances that the Finance Minister is here to stay underscores the importance of disciplined fiscal and monetary policy,” he said.

The BI-Rate survey was conducted before the stocks meltdown, which at one point saw the benchmark down as much as 7.1%, but Bank Indonesia signaled its determination to support the currency by actively intervening in markets on Tuesday.

That would argue for it to keep rates unchanged, especially ahead of this week’s meeting of the Federal Reserve, which is widely expected to hold rates while sending hawkish signals. A reduction in Indonesian rates could lead to further outflows from the rupiah and increase volatility as US President Donald Trump prepares tit-for-tat tariffs that are set to apply in April.

Concerns have been mounting over Southeast Asia’s largest economy after the government posted a rare budget deficit for the first two months of the year. The risk of a fiscal slippage has fueled foreign capital outflows from local assets, dragging the rupiah down against the dollar over the past week after it gained ground in early March.

“The currency may continue to weaken on the back of lingering policy uncertainty,” MUFG Bank Ltd analysts including Lloyd Chan wrote in a March 14 note.

Indrawati sought to ease those worries on Tuesday, remarking that March had seen an improvement in fiscal conditions and describing the results of the latest government bond auction as “very good.”

“Investors are comfortable and confident with the management of the state budget,” she said.

Here are the things to watch out for on Wednesday at 2pm Jakarta:

Investors will keep a close eye on Bank Indonesia’s latest reading of financial market volatility, as mounting risks weigh on Indonesian assets and make policymakers more cautious about embarking on more rate cuts.

The rupiah has weakened about 0.9% this past month, the worst performer in Asia despite waning dollar strength in early March. The 10-year government bond yield has risen 26 basis points in the same period. Foreign investors were net sellers of sovereign debt last week after Fitch Ratings warned of fiscal uncertainty when it affirmed the nation’s credit rating.

Jakarta’s stock index has has been hit harder, falling more than 12% this year to become one of the world’s worst performers. It sank more than 5% on Tuesday alone, triggering a trading halt. Both Goldman Sachs Group Inc and Morgan Stanley have downgraded Indonesian stocks amid weaker earnings, slowing economic growth and potential fiscal slippage.

Recent discussions by lawmakers on Bank Indonesia’s mandate under the amendment of a broader financial law have also renewed concerns about the central bank’s future independence. Any pressure on Bank Indonesia for a new round of debt monetization will alarm the market regarding the country’s economic prudence.

“BI is caught between a rock and a hard place. Twin deficits, weakening growth and policy uncertainties may not do the rupiah any favors,” Oversea-Chinese Banking Corp economists including Lavanya Venkateswaran wrote in a note.

OCBC sees today’s rate decision as another close call, but leans toward a 25-basis point cut as Bank Indonesia may prioritise growth. However, the central bank will likely need to handle depreciation pressure on the rupiah, which has underperformed its regional peers even without a rate cut in February, OCBC wrote.

To be sure, Bank Indonesia still has room to ease monetary policy. Last month, Governor Perry Warjiyo said that further rate cuts were a matter of timing, depending on the global situation.

Analysts will be looking for any signals from Warjiyo on the pacing of his next move. Bank Indonesia may be compelled to help spur gross domestic product growth that “could remain stuck at around 5% for some time” as an ongoing review of the state budget stalls spending, said Bank of America NA economists Kai Wei Ang and Rahul Bajoria.

Fitch likewise noted that lifting the annual GDP growth rate to President Prabowo Subianto’s 8% goal could be challenging, while OCBC downgraded its forecast to 4.9% for 2025.

A temporary cut in electricity tariffs and slower food price increases pushed the country into its first annual deflation in over two decades in February. Although headline inflation may soon return to Bank Indonesia’s target range of 1.5% to 3.5% for 2025, it’s expected to be lower on average this year.

Uploaded by Jason Ng