Indonesia Hikes Rates to Support Rupiah

Bank Indonesia raised its key interest rate by 25 bps to 5.75% at its June 18, 2026, meeting, as widely expected, following a 25 bps hike at an off-schedule meeting on June 9 aimed at supporting the rupiah, taming inflation, and supporting economic growth. The central bank has raised rates by a total of 100 bps since May, bringing the policy rate to its highest level since April 2025. The annual inflation rate surged to 3.08% in May from 2.42% in April, nearing the upper end of BI's 1.5%-3.5% target range. However, the central bank expects to keep inflation within the government's 2.5% ±1% target range and maintained its economic growth forecast of 4.9%-5.7% for 2026. Bank Indonesia also raised the rates on its overnight deposit facility and lending facility by 25 bps each, to 4.75% and 6.50%, respectively.

Bank Indonesia unexpectedly raised its key interest rates in an off-schedule meeting on June 9, 2026, as mounting external pressures weighed on the rupiah. The benchmark rate was lifted 25bp to 5.5%, alongside increases in the overnight deposit facility to 4.5% from 4.25% and the lending facility to 6.25% from 6%. Policymakers also unveiled measures to bolster the currency, including incentives to attract foreign investment. The package aims to stabilise the rupiah amid Middle East–driven volatility and keep inflation within target. Officials said the move reflects efforts to safeguard financial stability and sustain confidence in the economy against rising external risks. Sentiment was further supported as the dollar index eased from a nine-week high after Iran and Israel agreed to halt attacks, easing geopolitical tensions and improving risk appetite. Separately, Governor Perry Warjiyo projected the rupiah at 16,800–17,500 per U.S. dollar in 2027, with GDP growth seen at 5.1%–5.9%.

Bank Indonesia raised its benchmark interest rate by 50 bps to 5.25% at its May 2026 policy meeting, delivering a larger-than-expected increase as markets had anticipated a 25 bps hike to 5%. The move marked the central bank’s first rate hike since April 2024, aiming to strengthen the rupiah, curb imported inflation risks, and keep inflation within the government’s 2.5% ±1% target range. The rupiah weakened 2.2% from end-April to Rp17,700 per US dollar on May 19. Meanwhile, annual inflation eased to 2.42% in April 2026 from 3.48% in March, the lowest since August 2025 and still within the central bank’s target range. The decision aligns with the “pro-stability” focus of monetary policy aimed at strengthening Indonesia’s external resilience amid global uncertainty. Meanwhile, macroprudential and payment system policies remain geared toward supporting growth (“pro-growth”). The central bank also raised its overnight deposit facility rate to 4.25% and its lending facility rate to 6.0%.