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Bank Indonesia kept the benchmark rate on hold on Tuesday, along our expectations. The on-hold decision underscored the central bank's focus on financial market stability, in midst of Middle east tensions and domestic fiscal risks. Post-policy commentary was perceived as being slightly hawkish, as Governor Warjiyo highlighted spillover effects from global developments, leaning towards an extended pause. If risk appetite remains subdued, rate cuts are off the table for rest of the year. On prevailing risks in West Asia, Indonesia is a net oil importer, but also a net commodity exporter, which suggests that any negative impact on the trade balance can be averted if prices of the broader metals/minerals universe remain firm, in lockstep with petroleum/ crude oil. Nonetheless, other macro conditions are less conducive amidst cautious rating outlook and durability of fiscal targets at this juncture.
While the benchmark rate was left unchanged, BI tightened rules on FX purchases to further stabilize the currency, apart from regular intervention efforts. These included a) cash purchases of foreign currency against IDR will be set at $50k per buyer/ month from April 2026 onwards (transition period till 30-April), vs $100k earlier; b) an increase in the transaction limit for Domestic Non-Deliverable Forwards (DNDF) and swaps to encourage companies, importers, or investors to hedge currency risk in larger amounts without splitting transactions into smaller transactions; c) reporting threshold for mandatory supporting documents for outgoing FX transfers was lowered. In total, these measures are aimed at rationalizing demand for foreign currencies, whilst also encouraging companies to undertake FX risk management measures as the rupiah hovered near the crucial 17000 level this week. When onshore markets return from the long onshore holiday (Mar 20 to 24), prevailing risk appetite on account of how geopolitical tensions progress and domestic fiscal narrative will dictate if there is any relief for IDR bonds and currency. 
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