BI Governor: We raised interest rates to attract 'inflow'

Jakarta (ANTARA) - Bank Indonesia (BI) Governor Perry Warjiyo said the Indonesian central bank was actually reluctant to raise its benchmark interest rate (BI-Rate), but did so to attract inflows of foreign portfolio investment into the country. On Tuesday, through its Weekly Board of Governors Meeting (RDG), BI decided to raise the BI-Rate by 25 basis points (bps) to 5.5 per cent. “Today we raised it again to 5.5 per cent. We do not like raising interest rates, but in order to attract foreign portfolio investment when rates are rising everywhere abroad, we are adjusting to the market mechanism,” Perry said during a working meeting with the Budget Committee of the Indonesian House of Representatives (DPR RI) in Jakarta on Tuesday. BI had recently raised the BI-Rate by 50 bps at its Monthly Board of Governors Meeting on 19-20 May 2026. The increase in May 2026 marked the first adjustment after the benchmark rate had been held at 4.75 per cent since September 2025. Throughout 2025, BI had previously cut the benchmark rate five times, totalling a reduction of 125 bps. BI is scheduled to hold its next Monthly Board of Governors Meeting on 17-18 June 2026. In addition to the interest rate adjustment, Perry outlined other measures aimed at maintaining rupiah exchange rate stability, including BI’s continued foreign exchange intervention, both in the offshore Non-Deliverable Forward (NDF) market and through spot transactions and Domestic Non-Deliverable Forward (DNDF) in the domestic market. Furthermore, BI is ensuring that foreign exchange reserves are maintained at more than sufficient levels to safeguard rupiah exchange rate stability. The central bank is also boosting foreign capital inflows by enhancing the interest rate structure of Bank Indonesia Rupiah Securities (SRBI). This is being done in continuous coordination with the government so that portfolio investment increases not only in SRBI instruments but also in Government Securities (SBN) and the stock market. Perry also explained the fiscal and monetary coordination to ensure liquidity in the money market and banking sector remains more than adequate, particularly so that base money (M0) growth remains in double digits. Additionally, BI is lowering the threshold for cash purchases of foreign exchange against the rupiah without underlying transactions to 25,000 US dollars per transactor per month, effective June 2026. As part of efforts to strengthen the rupiah exchange rate, BI is expanding the use of local currency transactions (LCT) for settling trade and investment transactions. BI is also strengthening supervision of banks and corporations with high US dollar purchasing activity through close coordination with the Financial Services Authority (OJK).