JAKARTA (June 20): Indonesia's central bank kept interest rates unchanged on Thursday, saying it will fine-tune other tools to stabilise the rupiah, which it believes will return to a strengthening trend.

Bank Indonesia (BI) kept the seven-day reverse repurchase rate at 6.25%, as expected by 29 of 32 economists polled by Reuters. Its two other main policy rates were also left unchanged.

BI said the current policy rate remained consistent with efforts to stabilise the rupiah even after the currency dropped to its weakest in more than four years.

To support the rupiah exchange rate, Governor Perry Warjiyo said the central bank will optimise the use of its other instruments to attract inflows, and will continue its interventions in the spot foreign exchange and non-deliverable forward markets, as well as in the bond market when needed.

BI had surprised markets in April by raising the benchmark rate in response to capital outflows hitting the rupiah.

The currency has been under renewed pressure since late May, weakening past 16,400 per dollar due to capital outflows related to the shifting outlook for US monetary policy. The rupiah is down 6.2% against the dollar so far this year.

The currency has also been affected by investors' worries the incoming government of President-elect Prabowo Subianto will raise the country's debt-to-GDP ratio to boost economic growth.

Prabowo, who will take office in October, has pledged to boost growth to 8%.

That compares with the central bank's outlook for GDP growth of 4.7% to 5.5% this year and last year's expansion of 5.05%.

"We still believe the trend of the rupiah will be strengthening," Warjiyo said, adding that based on domestic economic fundamentals, the rupiah could strengthen to below 16,000 per dollar.

Foreign exchange demand from companies, which typically peaks around the second quarter, he said, should also ease in coming months and help steady the rupiah.

Once global uncertainties start to ease, BI may have room to start lowering its policy rate, Wariyo said.

Economists say BI is unlikely to move ahead of US Federal Reserve (Fed) rate cuts anticipated later this year.

"We expect BI to maintain the policy rate throughout this year, with a 25 basis point FFR (federal funds rate) cut beginning in Dec-24," said Bank Danamon economist Hosianna Situmorang.

"Subsequently, BI will have room to follow the Fed's cut cycle in the first quarter of 2025 at the earliest."

Inflation cooled to an annual 2.84% last month, moving closer to the centre of BI's 1.5% to 3.5% target range.

Meanwhile, BI will issue a new regulation to make sure banks manage their short-term foreign liabilities amid heightened foreign exchange risks.

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