BI Governor confident rupiah will strengthen as BI Rate rises by 50 basis points

Jakarta — Bank Indonesia Governor Perry Warjiyo is confident the rupiah will strengthen in July and August 2026 alongside a decision to raise the BI Rate by 50 basis points in May and a lull in domestic foreign exchange demand. He said the confidence is supported by the central bank’s continued foreign exchange interventions and by strengthening the structure of the Rupiah Securities (SRBI) interest rate to attract foreign capital inflows.

‘With ongoing intervention, with the BI Rate increase, and with changes to the SRBI interest rate structure, we believe inflows will remain large into the country and will certainly meet the demand for foreign exchange in June, which remains sizeable,’ Warjiyo said at the BI Board of Governors press conference in Jakarta on Wednesday.

He confirmed that the 50 bps hike to 5.25% was carefully considered to maintain external stability amid global volatility and to support economic growth.

‘We have long debated how to formulate policy, sharing information on the outlook and risks,’ he said.

He explained that pressures on the rupiah stem from global shocks including tariff policies, the war in the Middle East, higher oil prices, and tightening global interest rates along with a strengthening US dollar driving capital outflows from developing countries, including Indonesia.

Moreover, domestic FX demand in April to June also increased due to haj and umrah religious pilgrimage, debt repayments, and dividend payouts. BI has also intensified FX intervention, both through Non-Deliverable Forward (NDF) deals in overseas markets and through spot and Domestic Non-Deliverable Forward (DNDF) in domestic markets.

Large-scale interventions have also reduced the foreign exchange reserves accumulated during periods of capital inflows, though reserves remain adequate to sustain external resilience.

Separately, Warjiyo noted that the recent SRBI rate hikes over the past two months have helped resume foreign inflows after a prior large outflow in Q1, supporting rupiah stability.

At the May 2026 BI Board of Governors meeting, the central bank decided to raise the BI-Rate by 50 bps to 5.25%. The deposit facility rate was raised by 50 bps to 4.25%, and the lending facility rate also rose by 50 bps to 6.0%.

BI said the move is a continuation of measures to strengthen rupiah stability against spillovers from regional turmoil, and as a pre-emptive step to keep inflation in 2026-2027 within the government’s target range of 1.5-3.5% (2.5% +/- 1%). The policy focuses on stabilisation (pro-stability) to bolster Indonesia’s external resilience amid global volatility, while macroprudential and payment system policies remain oriented toward growth (pro-growth).Looser macroprudential policy continues to be strengthened to push growth through increased credit to the real sector while maintaining financial system stability.