Bank Indonesia raises rates to 5.75% as rupiah defense intensifies

Bank Indonesia raised its benchmark rate for the second time in two weeks, intensifying efforts to stabilize a rupiah under pressure from global geopolitical turmoil.

Bank Indonesia raised its benchmark interest rate 25 basis points to 5.75% on Thursday, the second hike in as many weeks, as policymakers intensify currency intervention to defend a rupiah battered by geopolitical volatility.

"Inflation remains under control," Governor Perry Warjiyo said at a press conference following the decision. "The rupiah is seen stabilizing, with a tendency to strengthen going forward."

The rupiah strengthened against the dollar after the announcement, with USD/IDR trading around 17,820, compared with levels above 17,900 before the decision. The central bank has increased the intensity of currency interventions and raised rates on its SRBI securities to attract foreign capital. Outstanding SRBI notes reached 1,021.1 trillion rupiah, with non-resident investors holding 238.1 trillion rupiah as of mid-June.

The move shows the challenge facing emerging-market central banks as global monetary conditions tighten. The Bank of Japan raised rates to a 31-year high of 1% this week, and the European Central Bank hiked last week, while US inflation sits at a three-year high, keeping pressure on the Federal Reserve. BI's next policy meeting will test whether higher rates and intervention can sustain rupiah stability without choking domestic growth.

The June 18 decision follows an off-cycle 25-basis-point hike on June 9 that brought the rate to 5.50%, a rare move BI used to stem the rupiah's slide to a series of record lows. The back-to-back increases bring cumulative tightening to 50 basis points in just over a week, signaling the central bank's determination to prioritize currency stability over domestic stimulus.

Foreign investors have responded positively to the earlier hike. BI recorded higher capital inflows in an auction of up to one-year tenor SRBI bonds on June 10, raising 15 trillion rupiah ($834 million). "Foreign capital inflows have also begun to return to the government bond market, particularly in the short and medium-term tenors," BI spokesperson Ramdan Denny Prakoso said last week.

Global Tightening Adds Pressure on Emerging Asia

Indonesia is not alone in tightening. The Bank of Japan raised its benchmark rate to 1% on Tuesday, the highest since 1995, as it battles inflation caused by the Middle East conflict. The European Central Bank also hiked last week. With US consumer prices at a three-year high, markets expect the Federal Reserve to raise rates, though new Chair Kevin Warsh is not expected to act at his first gathering this week.

BI maintained its 2026 GDP outlook at 4.9% to 5.7%, suggesting the central bank sees room for the economy to absorb higher rates without derailing growth. The central bank said it will continue "consistent and measured" intervention in offshore, onshore and spot markets to support the rupiah.

The last time BI deployed back-to-back rate hikes of this magnitude was during the 2018 emerging-market selloff, when the rupiah came under similar pressure from Federal Reserve tightening and trade war uncertainty. That cycle ended after five consecutive increases totaling 175 basis points over four months.

The next BI policy meeting will be closely watched for signs of whether the tightening cycle has peaked or further hikes are needed. For now, the central bank has bought time — but the broader fight to defend the rupiah against global dollar strength and geopolitical uncertainty is far from over.

This article is for informational purposes only and does not constitute investment advice.