Impact of Further BI Rate Hike on Consumption and Investment

Kiwoom Sekuritas Indonesia Head of Research Liza Camelia Suryanata assessed that the increase in the BI Rate to 5.75 percent signals that Bank Indonesia is choosing to maintain rupiah stability, even though the consequence is a higher cost of funds. In the short term, she said, this policy will widen the yield attractiveness of rupiah assets. However, for the stock market, Liza noted the effect is mixed. She explained that on one hand, rupiah stabilisation could lower Indonesia’s risk premium and be a positive sentiment for foreign investors. “But on the other hand, the rate hike suppresses stock valuations, raises the cost of fund, and has the potential to slow consumption and investment,” she said in a written statement on Thursday, 18 June 2026. Liza highlighted BI’s move to raise the benchmark interest rate by 100 basis points in approximately one month. She considered this step aggressive by BI’s standards, although not yet comparable to extreme crisis periods like 1998. The difference, Liza said, is that currently BI is not facing a systemic crisis like 1998, but is instead mounting a pre-emptive defence of the rupiah amidst the Federal Reserve’s renewed hawkish stance. Kiwoom Sekuritas views the BI-Rate hike as a “stabilisation medicine” rather than a full solution. “BI can buy time and ease pressure on the rupiah, but sustainable foreign inflows still require support from credible fiscal policy, more efficient government spending, clearer policy communication, and more predictable regulation,” Liza stated. The decision to raise the BI-Rate to 5.75 percent was taken at the Bank Indonesia board of governors meeting on 17-18 June 2026. BI also decided to raise the deposit facility rate to 4.75 percent and the lending facility rate by 25 bps to 6.5 percent. “Based on a comprehensive assessment, the Bank Indonesia board of governors meeting on 17 and 18 June 2026 decided to raise the BI-Rate by 25 basis points to 5.75 percent,” said BI Governor Perry Warjiyo at a press conference on Thursday, 18 June 2026. He said the BI-Rate hike is a further step to strengthen rupiah exchange rate stability amidst high global uncertainty.