Economist: BI Rate Hike a Rational Move to Safeguard Rupiah

Bank Indonesia (BI) raised its benchmark BI-Rate by 25 basis points to 5.75% during its Board of Governors meeting on 17-18 June 2026. The central bank also increased the Deposit Facility rate by 25 bps to 4.75% and the Lending Facility rate by 25 bps to 6.50%. The decision is a policy response to strengthen rupiah stability amid persistently high global uncertainty and a pre-emptive step to keep inflation within the 2.5±1% target range for 2026 and 2027. Meanwhile, macroprudential and payment system policies remain directed to support pro-growth efforts. Loose macroprudential policy continues to be strengthened to encourage economic growth through increased credit and financing to the real sector while maintaining financial system stability. BI also stated that payment system policy is directed to support economic activity through expanded digital payment acceptance, strengthening the payment system industry structure, and enhancing the reliability and resilience of payment system infrastructure.

Bank Permata economist Josua Pardede assessed the 25-bps BI-Rate hike to 5.75% as a rational and defensive step to maintain rupiah stability and safeguard the inflation target. “With this additional increase, BI has cumulatively raised interest rates by 100 basis points since May 2026, including an off-schedule hike on 9 June 2026. This means BI is sending a strong signal that rupiah stability and controlling inflation expectations are top priorities amid unabated global pressures,” Josua told CNBC Indonesia. From a macro perspective, he continued, the decision is considered appropriate because external pressure on the rupiah remains significant. BI noted that global uncertainty remains high due to the Middle East conflict, risks of rising global inflation, potential US interest rate hikes, high US Treasury yields, and a persistently strong US dollar. Consequently, there is a risk of spillover to developing countries, including Indonesia, such as easy capital outflows, requiring domestic interest rates to be sufficiently attractive to keep Indonesian financial assets competitive. However, the effectiveness of the rate hike should not be overstated, as the source of rupiah pressure stems more from external factors rather than solely from domestic imbalances.

He said the transmission of BI’s monetary policy has begun to show short-term results. The rupiah exchange rate on 17 June 2026 was recorded at Rp17,730 per US dollar, strengthening 0.76% compared to the end of May 2026. This appreciation was also influenced by BI’s intervention, rising yields on Bank Indonesia Rupiah Securities (SRBI), and foreign fund inflows into domestic financial instruments. The outstanding SRBI position reached Rp1,021.13 trillion, with non-resident ownership at Rp238.09 trillion or 23.32% of the total. “This shows that rupiah stabilisation still relies on the attractiveness of short-term portfolio yields. This strategy is effective in curbing market pressure but is vulnerable if global sentiment deteriorates again or foreign investors withdraw their funds quickly,” Josua explained. From the inflation side, Josua considers the BI-Rate hike understandable because price pressures are increasing. Inflation in May 2026 rose to 3.08% from 2.42% the previous month, driven by core inflation of 2.59%, administered prices of 2.07%, and volatile food prices of 6.24%. He added that price pressures mainly stem from food, weather, global energy prices, non-subsidised fuel, LPG, and avtur. With the rupiah still vulnerable, BI needs to prevent exchange rate depreciation from spilling over into imported inflation, production costs, and public inflation expectations. The June 2026 Board of Governors decision is considered the right step to maintain rupiah stability and safeguard the inflation target. BI is also advised to be cautious so that the interest rate hike does not become excessive pressure on credit, consumption, and investment. Josua recommended that BI hold the BI-Rate at 5.75% as a baseline scenario, strengthen rupiah stabilisation through measured intervention and foreign exchange market deepening, reduce reliance on short-term foreign funds in SRBI, maintain banking liquidity for productive sectors, and strengthen fiscal-monetary coordination. Through this approach, rupiah stability can be maintained without excessively sacrificing economic growth.