Rates on Hold: Same Action, Different Intentions
The Fed and Bank Indonesia held rates steady, but for different reasons. Explore what this means for the rupiah, inflation, and Simpan’s equity strategy.
Both the Federal Reserve and Bank Indonesia (BI) kept their benchmark rates unchanged this week—at 4.5% and 5.5%, respectively—but their reasons diverge sharply.
The Fed is cautious amid uncertain inflation and tariff-related risks, holding rates for the fourth time in a row. Projections suggest slow growth and persistent inflation in 2025, though two cuts remain possible this year.
Bank Indonesia, after a recent rate cut, held steady to defend the rupiah and manage capital outflows, especially with the Fed staying hawkish. Indonesia’s inflation is low (1.6%), and fundamentals are solid, but external risks are rising.
Geopolitical risks, especially renewed tensions in the Middle East, add global uncertainty, impacting oil prices and market sentiment.
Simpan Views
The gap between U.S. and Indonesian rates will be key for markets. Any rise in U.S. real yields could pressure the rupiah, limiting BI’s room to cut.
Foreign outflows have hit Indonesian equities, especially large-caps. However, domestic liquidity has kept the JCI resilient.
Our strategy: stay tactical in the short term (momentum plays), but maintain long-term blue-chip positions to benefit from potential foreign investor return. Active management remains essential.