USD/IDR jumps to near 16.40 as BI unexpectedly cuts interest rates, Fed policy eyed

• USD/IDR gains sharply to near 16.40 as the BI surprisingly reduced interest rates.
• The BI lowers the repo purchase rate to 4.75% to boost economic growth.
• Investors await the Fed’s monetary policy announcement at 18:00 GMT.

The USD/IDR pair climbs to near 16.40 during the European trading session on Wednesday. The pair attracts significant bids as the Bank Indonesia (BI) has surprisingly cut its benchmark 7-day reverse repurchase rate by 25 basis points to 4.75%. This is the sixth interest rate cut announced by the BI in its current monetary-expansion cycle, which it started in September 2024.

The BI has unexpectedly reduced interest rates to stimulate economic growth. BI Governor Perry Warjiyo has stated that the central bank will keep the door open for further monetary policy easing to boost domestic growth.

Meanwhile, the US Dollar (USD) trades cautiously ahead of the Federal Reserve’s (Fed) monetary policy announcement at 18:00 GMT. Traders are increasingly confident that the Fed will start the monetary-easing campaign, which it paused earlier this year.

During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, appears vulnerable near the two-month low around 96.60.

According to the CME FedWatch tool, traders see a 96% chance that the Fed will reduce interest rates by 25 basis points (bps) to 4.00%-4.25%, while the rest support a bigger reduction of 50 bps.

As the Fed is nearly certain to cut interest rates, investors will majorly focus on the Fed’s dot plot and Summary of Economic Projections (SEP).