BI Rate Hike Seen as 'Stability Medicine' for Rupiah and Inflation
Jakarta, CNBC Indonesia - Bank Indonesia’s (BI) decision to raise its benchmark interest rate, the BI Rate, by 25 basis points to 5.75% is considered by a number of economists as a positive step to safeguard the rupiah’s exchange rate against the US dollar.
This was conveyed by Bank Permata economist Josua Pardede to CNBC Indonesia on Friday (19/6/2026).
“The short-term impact of the BI-Rate hike on the rupiah tends to be positive because it makes rupiah assets more attractive,” said Josua Pardede.
Josua explained that BI’s measures include providing hedging incentives for foreign investors, reopening repo auctions to maintain liquidity, and increasing banks’ overseas funding space from 35% to 40% of bank capital starting 1 July 2026.
“The initial results are visible in capital flows. BI recorded that in the second quarter of 2026 up to 15 June, net foreign capital inflows amounted to USD 3.9 billion, reversing from an outflow of USD 0.8 billion in the first quarter,” said Josua.
“The rupiah also strengthened to Rp17,730 per US dollar on 17 June 2026, supported by rising yields on rupiah instruments, BI intervention, and the entry of foreign funds into SRBI and SBN,” he continued.
The rupiah exchange rate itself managed to close 0.17% stronger at Rp17,700/US$ in trading on Thursday (18/6/2026) following the BI interest rate announcement.
Nevertheless, Josua criticised the quality of the capital flows, which are still largely reliant on short-term instruments such as SRBI.
Josua said this can indeed stabilise the rupiah, but it will be easy for funds to exit if the US dollar strengthens again, US bond yields rise, and Indonesia’s risk perception deteriorates.
Meanwhile, for the Indonesian economy, Josua views the BI rate hike as a stability medicine, particularly in relation to efforts to anchor inflationary pressures.
“For the Indonesian economy, the BI-Rate hike is a stability medicine, but not a growth medicine. The positive impact is a more stable rupiah, imported inflation can be suppressed, foreign exchange reserves are better protected, and investor interest in rupiah assets increases,” he added.
On the other hand, the negative impacts are that bank funding costs could rise, new lending rates could increase, durable goods consumption weakens, and private investment becomes more selective.