Economist: BI Rate Increase to 5.5 Per Cent Helps Reduce Pressure on Foreign Exchange Reserves

The decision by Bank Indonesia (BI) to raise the benchmark interest rate, or BI Rate, by 25 basis points to 5.5 per cent is considered capable of helping to reduce pressure on foreign exchange reserves, which have been used to maintain the stability of the Rupiah exchange rate.

Josua Pardede, Chief Economist at Permata Bank, stated that the interest rate hike is one way to strengthen the attractiveness of Rupiah assets, thereby reducing the necessity for interventions using foreign exchange reserves. “The increase in the benchmark rate to 5.50 per cent strengthens the attractiveness of Rupiah assets, helps curb foreign capital outflows, and reduces pressure on foreign exchange reserves that have been used for Rupiah stabilisation,” Josua told Republika on Tuesday (9/6/2026).

According to him, BI’s decision to raise the BI Rate is an appropriate step as the Rupiah’s depreciation has been deeper than anticipated. Simultaneously, global volatility remains high, and the market requires a signal that the central bank will not allow pressure on the Rupiah to continue without a policy response.

However, Josua cautioned that the interest rate hike does not necessarily guarantee an immediate strengthening of the Rupiah. This is because the current depreciation is influenced not only by the yield differential with US Dollar assets but also by a combination of global and domestic factors.

From a global perspective, conflicts in the Middle East, high oil prices, and the sustained high interest rates in the United States lead investors to seek safer assets. Domestically, the market continues to monitor fiscal credibility, the direction of government policy, regulatory certainty, and capital outflows from the stock market. “Therefore, the BI Rate increase is more appropriately viewed as a measure to dampen short-term pressure, rather than a single solution for recovering the Rupiah,” said Josua.