Criticising BI Policy, Economist Suggests Four Brazilian Tactics to Save the Rupiah

Jakarta, VIVA – Bank Indonesia’s (BI) policy of raising benchmark interest rates is assessed to have not yet delivered an optimal impact on strengthening the rupiah’s exchange rate. Rather than stabilising the currency, the move is viewed as one of the triggers for foreign capital outflows from the domestic market.

Economist Gede Sandra assesses that the monetary situation currently facing Indonesia shares similarities with the economic dynamics experienced by Brazil in 2002. “This is something that could actually have been avoided if the Central Bank’s response had been more precise. Instead, it seems to be making matters worse,” said Gede Sandra, as quoted on Monday, 8 June 2026.

Referring to research by economist Olivier Blanchard (2004), Gede explained that Brazil once took similar steps by raising interest rates to curb inflation. However, that policy was met with a negative market response, triggering investor panic, capital flight, and currency depreciation. “The hope was for the currency to appreciate, but instead, it weakened. The problem is, the experience in Brazil has not served as a lesson for the monetary authorities at Bank Indonesia,” Gede noted.

Market concerns, according to Gede, are further exacerbated by Indonesia’s debt ratio, which currently stands at approximately 40 per cent of Gross Domestic Product (GDP)—a figure approaching Brazil’s position at that time (50-60 per cent). Additionally, the yield on Indonesian government bonds has risen to the 7 per cent level.

“When the Central Bank authorities raise monetary interest rates, bond yields also rise. Investors see this and fear the possibility of a default,” he explained.

On the other hand, Gede highlighted a misalignment between BI’s monetary policy and the government’s fiscal performance, which has shown positive results so far. According to data from April, the state’s financial performance was impressive, with revenues reaching IDR 918 trillion and expenditure at IDR 1,024 trillion, keeping the deficit at 0.64 per cent. Furthermore, the primary balance managed to record a surplus after being negative in the first quarter, in line with the continued positive trend in the trade balance. However, these achievements in the real and fiscal sectors are deemed inconsistent with the direction of monetary policy.