Bank Indonesia (BI) has taken an aggressive step in its monetary\npolicy. During the monthly Board of Governors Meeting on 18-19 June\n2026, the central bank decided to raise the BI Rate by 25 basis points\n(bps) to 5.75%.<\/p>\n
This increase was not an isolated move. Previously, BI had raised the\nbenchmark interest rate by 50 bps during the 19-20 May 2026 meeting,\nfrom 4.75% to 5.25%. Shortly thereafter, BI surprised the market again\nduring a weekly meeting on 9 June 2026 by raising the BI Rate by 25 bps\nto 5.50%.<\/p>\n
With the additional hike in the June meeting, the total increase in\nthe BI Rate within approximately one month has reached 100 bps. This\nmove demonstrates that BI has chosen a firm path of stabilisation,\nparticularly to safeguard the rupiah exchange rate and curb inflation\nrisks amidst high global pressures.<\/p>\n
BI emphasised that the interest rate hike is a follow-up measure to\nstrengthen the stability of the rupiah exchange rate, as well as a\npre-emptive step to ensure that inflation in 2026 and 2027 remains\nwithin the government\u2019s target.<\/p>\n
However, high interest rate policies certainly do not only impact\nfinancial markets. In the longer term, rising rates could also affect\nconsumption, credit, investment, purchasing power, and business\nactivities.<\/p>\n
So, what is the condition of the Indonesian economy as BI becomes\nincreasingly aggressive in tightening monetary policy? The CNBC\nIndonesia research team has summarised the latest condition of the\nIndonesian economy based on several key indicators.<\/p>\n
Indonesia\u2019s economy continues to show strong performance early this\nyear. The Central Bureau of Statistics (B\/BPS) recorded that the\nIndonesian economy grew by 5.61% year-on-year in the first quarter of\n2026.<\/p>\n
This figure serves as a positive signal as the economy is still able\nto grow above the 5% psychological level. This growth also indicates\nthat domestic economic activity remains quite strong, despite increasing\nglobal and financial market pressures.<\/p>\n
From the production side, the highest growth occurred in the\naccommodation and food services sector, which grew by 13.14%. From the\nexpenditure side, the government consumption component recorded the\nhighest growth at 21.81%.<\/p>\n
Nevertheless, compared to the fourth quarter of 2025, the Indonesian\neconomy experienced a quarterly contraction of 0.77%. This indicates\nthat growth momentum still needs to be maintained, especially as\ninterest rates begin to move higher and potentially hinder business\nexpansion and public consumption.<\/p>\n
Indonesian inflation remains within BI\u2019s target range. In May 2026,\ninflation was recorded at 0.28% month-on-month. Annually, inflation\nstood at 3.08% year-on-year.<\/p>\n
This figure remains within the inflation target of 2.5\u00b11%. This means\nthat in terms of goods and services prices, national inflationary\npressure remains relatively controlled.<\/p>\n
Core inflation is also well-maintained. In May 2026, core inflation\nwas recorded at 0.22% month-on-month and 2.59% year-on-year. Core\ninflation is important to monitor as it reflects more fundamental price\npressures, particularly from the side of public demand.<\/p>\n
With inflation still under control, this BI interest rate hike\nappears to be more directed towards maintaining rupiah stability and\nanticipating future risks, rather than solely due to a current surge in\ndomestic inflation.<\/p>\n
The rupiah remains one of the primary reasons BI has chosen to\ntighten monetary policy. Pressure on the exchange rate has been quite\nsignificant recently, primarily due to global uncertainty caused by\ngeopolitical conflicts in the Middle East, which has driven high demand\nfor the US dollar.<\/p>\n
In trading on Friday (19\/6\/202<0xA0>6), the rupiah weakened\nagain to the position of Rp17,830\/US$ at the market opening. This\nweakening occurred after, in the previous trading session on Thursday\n(18\/6\/2026), the rupiah had closed stronger by 0.17% at the level of\nRp17,700\/US$.<\/p>\n
The current position of the rupiah is gradually starting to recover\nfollowing a period of weakening that saw the exchange rate breach the\nRp18,000\/US$ mark and even hit an all-time low of Rp18,170\/US$ at the\nclose of trading on Monday (8\/6\/2026).<\/p>\n
This movement shows that pressure on the rupiah has not yet fully\nsubsided. The increase in the BI Rate is expected to help maintain the\nattractiveness of rupiah assets, curb foreign capital outflows, and\ndampen exchange rate volatility.<\/p>\n
However, the challenge is significant. If US dollar pressure remains\nstrong, the interest rate hike may not be immediately sufficient to\nbring the rupiah back to a consistent strengthening trend in the\nfuture.<\/p>\n
Pressure is also felt in the stock market. The IDX Composite closed\nlower by 0.78% to 6,172.34 in trading on Thursday (18\/6\/2026), following\nBI\u2019s decision to raise the BI Rate to 5.75%.<\/p>\n
Compared to its peak this year, the pressure on the IDX Composite has\nbeen very deep. According to Refinitiv data, the IDX Composite briefly\ntouched 9,134.70 on 20 January 2026. Compared to its position on 18 June\n2026, the index has plummeted by approximately 32.4%. This is still much\nbetter compared to the lowest level of the IDX Composite in 2026, which\ntouched the 5,300 range early last week.<\/p>\n
Pressure on the IDX Composite comes not only from high interest rates\nbut also from MSCI sentiment since the beginning of the year. In late\nJanuary 2026, MSCI implemented a temporary or interim freeze on several\nchanges to the Indonesian stock index, highlighting issues regarding\nfree float transparency, share ownership structure, and indications of\ncoordinated trading.<\/p>\n
Market concerns increased as MSCI also opened the possibility of\ndowngrading Indonesia from an Emerging Market to a Frontier Market if\nimprovements in transparency are deemed inadequate.<\/p>\n
In the June 2026 Global Market Accessibility Review, MSCI again\nprovided notes regarding Indonesia, particularly on information flow\ncriteria.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/8-key-indonesian-economic-indicators-still-healthy-or-starting-to-ail-1782201160", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }