BI rate unexpectedly hiked, economist says BI turning more hawkish
JAKARTA – DBS Bank Economist Radhika Rao said Bank Indonesia (BI) has adopted an increasingly hawkish stance after raising its benchmark interest rate by 25 basis points to 5.50% through a weekly Board of Governors meeting on Tuesday (9/6).
The decision was announced ahead of the central bank's regularly scheduled monthly policy meeting, which had previously been set for mid-June.
BI said the rate increase was aimed at strengthening rupiah stabilisation amid the impact of the conflict in the Middle East and ensuring inflation remains within the government's target range.
In a research note, Rao said the rupiah has been among the weakest-performing currencies in the region, having depreciated by more than 8% since the start of the year and at one point falling beyond the psychological level of IDR 18,000 per US dollar.
Although BI has intervened to support the currency, Rao said declining foreign exchange reserves and widening bond yield differentials have contributed to a stronger tightening bias in monetary policy.
Indonesia's foreign exchange reserves fell to USD 144.9 billion in May 2026, their lowest level in two years.
While Indonesia's structural growth prospects remain attractive, Rao said investors are increasingly weighing short-term cyclical challenges and becoming more cautious towards domestic assets.
“Looking at previous cycles, we see reasons to expect further interest rate increases ahead,” Rao wrote in her research report.
Alongside the rate hike, BI also reduced hedging costs for foreign investors by adjusting swap rates by 10%.
The central bank further reopened auctions for repurchase agreement (repo) instruments with maturities of three, six, nine and 12 months for banks, while intensifying monetary operations in both the rupiah and foreign exchange markets to support currency stability.
As of 4:55 PM WIB, the rupiah had strengthened 0.71% to IDR 18,058 per US dollar, according to Bloomberg data, following BI's interest rate decision. The gain made the rupiah the strongest-performing currency among Asia's emerging markets against the US dollar on the day. (KR/ZH)
