Bank Indonesia unexpectedly raised its benchmark interest rate by 25 basis points to 5.50% at an off-cycle meeting ahead of its scheduled June policy meeting, underscoring mounting concerns over the weakening rupiah and persistent foreign capital outflows.
In its statement, the central bank described the move as a further measure to strengthen rupiah stabilisation and a pre-emptive step to keep inflation within its 1.5%-3.5% target range for 2026-2027.
BI also increased the deposit facility rate to 4.50% and the lending facility rate to 6.25%.
Beyond the rate hike, the central bank announced several additional measures to support the currency.
Notably, the rupiah has come under heavy pressure this year despite earlier tightening measures. As of June 9, the currency had depreciated 7.6% year-to-date to 17,959 per US dollar, hovering near record lows and underperforming regional peers.
Kenanga Research said the currency’s weakness reflects persistent foreign portfolio outflows, elevated global uncertainty linked to the Middle East conflict, higher US Treasury yields and a stronger US dollar.
Despite the aggressive policy response, BI reiterated that inflation remains manageable and is expected to stay within its target range. The central bank framed the latest hike as a pre-emptive measure to guard against imported inflation risks arising from a weaker rupiah and higher global commodity prices.
Economic growth, while still supported by domestic demand, has clearly become secondary to currency stabilisation in the current policy framework, Kenanga noted.
Looking ahead, Kenanga believes BI has adopted a more reactive and defensive stance, with the immediate focus firmly on rupiah stability. The research house said it would not rule out another rate increase as early as next week if market stress persists and the currency remains under pressure.
Kenanga maintained its year-end forecast for the rupiah at 17,200 per US dollar, compared with 16,694 at the end of 2025, but warned that the recovery outlook has become more constrained by geopolitical tensions, elevated oil prices, imported inflation risks, high US yields and ongoing capital outflows.
