Bank Indonesia (BI) raised its benchmark policy rate by another 25 basis points (bps) to 5.75% at its June monetary policy meeting, following an off-cycle rate increase last week.
The latest move marked BI’s third rate hike in June, bringing total monetary tightening this month to 100 bps as the central bank continued efforts to stabilise the Indonesian rupiah amid heightened global uncertainty.
Alongside the policy rate increase, BI also raised its deposit facility rate by 25 bps to 4.75% and its lending facility rate to 6.50%.
BI said the latest adjustment represented “a further step to strengthen rupiah stabilisation” while also serving as a pre-emptive measure to maintain inflation within its target range of 1.5% to 3.5% for 2026 and 2027.
The decision reinforces BI’s tighter monetary stance, with currency stability remaining the central focus despite improvements in global conditions.
According to a market report, BI’s latest move reflects growing concerns over external risks, capital flow volatility and imported inflation pressures.
Although tensions in the Middle East have eased following developments surrounding the US-Iran agreement, BI remains cautious over potential renewed market volatility that could pressure emerging market currencies.
The Indonesian economy is still expected to expand, with BI maintaining its 2026 GDP growth forecast at 4.9% to 5.7%, supported by resilient domestic demand, government spending, household consumption and investment.
However, BI noted that monetary policy would continue prioritising rupiah stability, while macroprudential measures and payment system policies would be used to support economic growth
Indonesia’s inflation accelerated in May 2026, rising to 3.08% from 2.42% in April, driven mainly by higher food and energy prices.
While inflation remains within BI’s target range, the central bank has become increasingly cautious over risks from a weaker currency and elevated global commodity prices.
The rise in imported inflation risks, particularly from energy and food prices, has strengthened the case for maintaining a tighter policy stance.
The rupiah has shown early signs of recovery after coming under pressure in recent months.
The currency strengthened modestly to around IDR17,730 against the US dollar as of June 17, after recently breaching the psychological IDR18,000 level.
The improvement reflected stronger intervention by BI, tighter monetary policy and reduced geopolitical concerns.
However, the rupiah remains weaker by around 6.2% year-to-date against the US dollar, underperforming several regional currencies including the Thai baht, Philippine peso and Malaysian ringgit.
The latest increase suggests BI has shifted from an emergency response approach into a more sustained tightening cycle, analysts said.
Further rate adjustments remain possible should global uncertainty persist, capital outflows accelerate or rupiah pressures return.
The next policy direction will depend heavily on rupiah movements and upcoming inflation data.
The report maintained a year-end USD/IDR forecast of 17,200, expecting a modest rupiah recovery supported by BI’s policy measures and potential return of foreign inflows.
However, gains are expected to remain limited due to persistent global risk aversion, elevated US yields, a strong US dollar environment and continued risks from energy and food price pressures.
