Benchmark Interest Rate Could Rise Further if US Dollar Breaches Rp18,200
Bank Indonesia (BI) has decided to raise the benchmark interest rate, known as the BI-Rate, by 25 basis points (bps) to 5.5% during its Weekly Board of Governors Meeting held on Tuesday. This move is regarded as a pre-emptive effort to maintain the stability of the Rupiah exchange rate amidst external pressures.
An economist from Bank Danamon, Hosianna Evalita Situmorang, projected that there is still room for further BI-Rate increases. This depends on the movement of the Rupiah exchange rate and the condition of the current account deficit (CAD).
“Yes, further increases are possible if the Rupiah remains under pressure above Rp18,200 per US Dollar and the current account deficit widens beyond 1.5% of GDP,” Hosianlag said in Jakarta on Tuesday.
BI’s decision to raise the benchmark rate received an immediate positive response from the market. On Tuesday afternoon, the Rupiah strengthened by 0.7% to the level of Rp18,070 per US Dollar in the spot market. Previously, in the current calendar year to date, the Rupiah had weakened by as much as 8%, touching the level of Rp18,190 per US Dollar.
Hossiana assessed that this intervention is crucial to mitigate the risks of imported inflation and its ripple effects. Additionally, this policy is projected to boost the attractiveness of domestic instrument yields for investors.
Pressure on the exchange rate is also reflected in Indonesia’s foreign exchange reserves position. At the end of May 2026, foreign exchange reserves were recorded at US$144.9 billion, a decrease of US$1.3 billion compared to the previous month. This decline was influenced by the payment of the government’s foreign debt and efforts to stabilise the Rupiah.
Accumulatively, in the first five months of 2026, foreign exchange reserves have decreased by US$11.6 billion from the position at the end of December 2025, which reached US$156.5 billion. Bank Indonesia is scheduled to hold its next Monthly Board of Governors Meeting on 17-18 June 2026 to evaluate subsequent monetary policy.
PT Bank Rakyat Indonesia (Persero) Tbk, or BRI, considers Bank Indonesia’s decision to raise the BI-Rate by 25 basis points to 5.5% to be an appropriate step. The first factor cited is that global economic conditions are expected to improve and not be as severe as they are now, with growth projections increasing to 3.1%.
The move is seen as reaffirming the policy priority of strengthening the exchange rate and inflation anchoring, while simultaneously increasing the attractiveness of portfolio fund flows into Indonesia.
Coordinating Minister Airlangga Hartarto stated that the increase in the BI-Rate to 5.50% is effective in maintaining economic stability, as evidenced by the strengthening of the Rupiah and the Indonesia Stock Exchange (IHSG).
However, the increase in the BI-Rate to 5.5% has triggered concerns within the business community. Apindo (the Indonesian Employers’ Association) noted that high financing costs are forcing entrepreneurs to recalibrate their expansion plans.