Falling Foreign Exchange Reserves, BI Expected to Raise Interest Rates

JAKARTA, KOMPAS.com – Manulife Asset Management Indonesia said that, amid geopolitical volatility and the rupiah’s continued weakness, room to trim interest rates is becoming more limited. Syuhada Arief, Senior Portfolio Manager Fixed Income at Manulife Asset Management Indonesia, explained that Indonesia’s foreign exchange reserves (FX reserves) have been eroded as Bank Indonesia (BI) seeks to maintain rupiah stability.

Indonesia’s FX reserves fell from 156.47 billion US dollars at end-December 2025 to 146.20 billion US dollars by end-April 2026. “Historically, a significant decline in FX reserves can put pressure on Bank Indonesia to raise interest rates,” he said in a written statement on Wednesday, 20 May 2026.

Rupiah weakness is also influenced by seasonal factors from high domestic demand for US dollars in the second quarter. To curb this weakness, BI has intervened in the foreign exchange market and raised yields on SRBI to maintain rupiah stability. The average yield in 12‑month SRBI auctions rose significantly from around 4.9% at the start of the year to 6.5% by early May.

The policy is viewed as successful in attracting foreign funds, with net foreign inflows of Rp 78 trillion by April 2026. In addition, to support the rupiah, BI also raised the repo rate to 5.1%. Note that the rupiah’s depreciation to around Rp 17,700 per US dollar has sparked fresh concerns in the domestic financial markets. This has fueled strong market speculation that BI could raise the policy rate by 25 basis points to 5% at the upcoming BI Board of Governors meeting on 19–20 May 2026, to curb rupiah pressure and dampen market volatility, according to Nafan Aji Gusta, Senior Market Analyst at Mirae Asset Sekuritas. He said the rupiah’s weakness has led markets to anticipate a 25 basis point hike in the BI Rate at the meeting.

The policy is seen as an intervention to safeguard rupiah stability amid rising global pressures.