(Bloomberg) — Bank Indonesia’s monetary policy will focus on maintaining stability in the short term, as a likely victory by Donald Trump in the US presidential election will put further pressure on the rupiah, its governor said.

While the central bank still sees room for further rate cuts, the focus in the short term will be on maintaining the stability of the rupiah, Bank Indonesia Governor Perry Warjiyo told parliament on Wednesday. He said caution is needed in the face of a likely Trump presidency, an uncertain path of Federal Reserve easing and elevated geopolitical tensions.

“We are watching the development of the US elections, where the preliminary result showed that Donald Trump is ahead,” Warjiyo said. “What we are seeing is that the dollar will remain strong, US Treasury yields and interest rates will remain high and the trade war may continue.”

“These dynamics will affect all countries, especially emerging markets and Indonesia, in terms of exchange rate pressure, capital flows and uncertainty in financial markets. This is all BI should respond to carefully.”

The rupee narrowed its losses to 0.6% against the dollar following the governor’s remarks, after falling as much as 0.8% on Wednesday.

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The comments underscore how the US elections – and the market volatility they have spurred – could complicate the monetary policy easing path for emerging markets. Bank Indonesia had started cutting its benchmark interest rate in September, but suspended its easing drive last month as the rupiah sank. Citigroup Inc. and Barclays Plc are among those who see the greatest chance of another holdup at the Nov. 20 meeting.

The central bank said earlier on Wednesday that it is ready to act to mitigate sharp swings in the exchange rate, deploying its so-called triple intervention in spot foreign exchange markets, non-deliverable domestic forward and secondary government bond markets. . The local currency has fallen 4.4% this quarter amid concerns that a Trump presidency could lead to higher tariffs that could slow global growth.

“BI will always monitor the exchange rate movement of the rupee and other currencies, and will certainly make various efforts to stabilize the exchange rate if there is an excessive increase in volatility,” said Fitra Jusdiman, head of monetary and asset management. central bank securities. , he said in a mobile phone message.

“BI has anticipated several scenarios of the US presidential election results and has also prepared mitigations for their possible impacts,” he added.

However, a prolonged pause could hurt the outlook. Southeast Asia’s largest economy is already experiencing steadily declining inflation and a struggling manufacturing sector, while gross domestic product growth hit a one-year low of 4.95% last quarter.

While Bank Indonesia maintained its GDP growth forecast for this year at 5.1%, driven by exports and investment, Warjiyo acknowledged that spending, especially among lower-income segments, needs more support. Greater flexibility remains on the table, but the governor indicated that markets may have to wait a little longer.

“We have started reducing the BI rate in September and still see room for further rate cuts with low inflation, although the near-term focus remains on rupee stability due to high global dynamics,” he said. “Bank Indonesia will continue to balance monetary policy between stability and growth in 2025.”

Meanwhile, Bank Indonesia has offered incentives to stimulate bank lending to labor-intensive sectors, PT Bank Maybank Indonesia said a pause in rates cannot last too long if policymakers are worried about growth .

“A significantly lower BI rate will support domestic demand activities that have substantial impacts for the economy,” he said in a note.

(Updates with Bank Indonesia rate outlook, analyst comments).

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