Economist: BI-Rate Hike Shows Rupiah Still Under Pressure

Jakarta (ANTARA) - Bank BTN economist Myrdal Gunarto views Bank Indonesia’s (BI) latest decision to raise the BI-Rate as a reflection of caution regarding ongoing risks of rupiah depreciation and the potential knock-on effects of imported inflation. The benchmark interest rate was increased by another 25 basis points during the monthly Board of Governors Meeting on Thursday, bringing the cumulative increase to 100 bps within a single month and positioning the BI-Rate at 5.75 percent. “We view this decision as reflecting Bank Indonesia’s continued prioritisation of macroeconomic stability, particularly in maintaining rupiah exchange rate stability amid heightened global uncertainty,” Myrdal stated in a publication released in Jakarta on Thursday. The BTN economist team noted that the policy also responds to domestic and external liquidity dynamics. Risks of a widening current account deficit, rising foreign exchange demand for energy imports and corporate dividend payments, as well as global capital flow dynamics, are all factors influencing the current monetary policy direction. The team sees the move as part of BI’s anticipatory strategy to maintain the attractiveness of domestic financial assets amidst potential shifts in global monetary policy and international capital flows. Although foreign investor interest in Indonesia’s financial markets has begun to show improvement, BI is taking preventive steps to bolster market confidence and safeguard financial system stability. Strong investor appetite at the Bank Indonesia Rupiah Securities (SRBI) auction, with absorption reaching approximately Rp43 trillion and yields remaining above 7 percent, indicates that BI’s monetary instruments remain effective in supporting domestic financial market stability. This condition also provides room for BI to continue maintaining liquidity and exchange rate stability should global volatility increase again. In the short term, the BTN economist team expects short-tenor Government Securities (SBN) yields to remain above 7 percent, while the 10-year Government Bond (SUN) yield is projected to move within a range of 6.87 to 7.41 percent. Myrdal projects that going forward, the room for further BI-Rate adjustments will be increasingly limited and will depend heavily on rupiah exchange rate movements, domestic inflation, global energy prices, and international capital flow dynamics. “As long as external pressures begin to ease and global oil prices remain under control, we estimate that the BI-Rate has the potential to be maintained at the 5.75 percent level until the end of the year,” he said. Under this assumption, Indonesia’s economic prospects are expected to remain intact, with economic growth of around 5.17 percent in 2026 and inflation at 3.09 percent. Meanwhile, banking intermediation growth is expected to be more moderate, with credit growth below 9 percent. According to the BTN economist team, sectors projected to be the main drivers of financing growth include food security, transportation, construction, the food and beverage industry, energy, iron and steel, palm oil, and residential property. For context, the cumulative BI-Rate increase over the past month totals 100 bps. At the Board of Governors Meeting on 19-20 May 2026, the BI-Rate was raised by 50 bps, marking the first adjustment after being held at 4.75 percent since September 2025. However, as the rupiah continued to weaken, touching the Rp18,000 per US dollar level, BI raised the rate by another 25 bps during an unscheduled Weekly Board of Governors Meeting on 9 June 2026. The latest 25 bps increase was decided at the monthly meeting on Thursday (18/6).