October 22, 2025 | 10:43 am

TEMPO.CO, Jakarta - The Chief Economist of Indonesia's Permata Bank, Josua Pardede, considers the risk of capital outflow to be relatively stable or still controllable if there is a 25 basis points reduction of BI Rate to 4.50 percent in October. "The outflow risk tends to be relatively manageable for a small reduction (25 bps) as long as it is accompanied by an aggressive policy mix," said Josua as quoted by Antara on Wednesday, October 22, 2025.
According to him, this step needs to be accompanied by measured intervention using various instruments, both in the spot market and through Domestic Non-Deliverable Forward (DNDF). This is similar to what was done in the previous month and proven effective in holding pressure in the forex market during significant outflows.
In addition, Bank Indonesia (BI) also needs to maintain the attractiveness of short-term rupiah-denominated instruments, both the Indonesian Rupiah Securities (SRBI) and Government Bonds (SBN), through market operations. It is also necessary to provide clear yield guidance so that investors do not simultaneously exit.
Stabilization efforts can also be strengthened by increasing forex reserve buffers through withdrawal of loans or planned issuance of government foreign currency bonds, in order to help stabilize market expectations.
On the other hand, Bank Indonesia needs to convey a clear communication narrative that the reduction of interest rates is a measured step, not unlimited easing. The central bank also needs to affirm that the direction of the next policy will still depend on economic data developments.
Josua assesses that there is a possibility for a 25 bps reduction in the benchmark interest rate to 4.50 percent, which will be announced in the Meeting of the Board of Governors (RDG) of Bank Indonesia in October.
This policy space is open because core inflation remains controlled and the real interest rate is still relatively high. With a benchmark interest rate or BI Rate of 4.75 percent and low expectations of core inflation in the future, there is still room to reduce the real interest rate without sacrificing price stability.
Domestic demand is also considered not fully recovered, so the interest rate cut can help boost consumption and credit. Improved banking liquidity also makes monetary policy transmission more effective, allowing interest rate cuts to be channeled to the real sector more quickly.
On the other hand, Josua believes that the pressure on the rupiah is relatively controlled even in the event of outflows. This is supported by a commodity trade surplus, BI's intervention in the spot and DNDF markets, as well as forex reserve revaluation, which provides a safer space when the central bank cuts interest rates.
However, if Bank Indonesia holds the benchmark interest rate at 4.75 percent, Josua said that this decision is likely based on several considerations. The delay could be an effort to manage signals to the market, after the previous cut was seen as tolerance for the rupiah's depreciation which triggered a surge in hedging.
BI can also choose to wait for clarity on the Fed's decision, given the close schedule of FOMC, so that the interest rate differential does not narrow too much. Meanwhile, from a technical perspective, holding the interest rate gives Bank Indonesia time to manage portfolio flows and domestic liquidity amidst increasing maturity of the Indonesian Rupiah Securities (SRBI) in October-November.
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