Rupiah No Longer on the Mend; BI Rate Expected to Rise Starting Tomorrow

Jakarta, CNBC Indonesia - Ahead of Bank Indonesia’s Board of Governors’ Meeting (RDG BI), market participants are beginning to see the possibility of an increase in the policy rate at this meeting. Bank Indonesia is holding the May RDG today, Tuesday (19 May 2026), with the decision to be announced tomorrow, Wednesday (20 May 2026). CNBC Indonesia’s polling results show market views this time are no longer unanimous as in previous meetings. Of the 15 institutions participating, nine expect Bank Indonesia to raise the BI Rate by 25 basis points to 5.00%. The remaining six expect BI to keep rates at 4.75%. The majority of market participants now view a rate hike as a scenario at this RDG, as pressures on the rupiah exchange rate intensify and external risks rise. In the last RDG in April 2026, BI again decided to hold the BI Rate at 4.75%, with the Deposit Facility rate at 3.75% and the Lending Facility at 5.50%. That decision marked the seventh consecutive time BI has held its policy rate. If the RDG outcome aligns with the majority consensus, this would be BI’s first rate increase in two years. The last time BI raised rates was in April 2024, when the central bank lifted the BI Rate by 25 basis points from 6.00% to 6.25%. However, market conditions have changed. Pressure on the rupiah has deepened, while external turmoil from the US–Iran conflict continues to create global uncertainty and keep world energy prices at high levels. The rupiah exchange rate has continued to hit new all-time lows and markets are pricing in a more decisive policy response from the central bank. One analyst predicting a rate rise is NH Korindo Sekuritas analyst Ezaridho Ibnutama. He said the continued weakness of the rupiah is the main reason BI needs to act promptly. ‘A 25 basis point rise. The rupiah is already weak, forming new all-time highs every day,’ Ezaridho told CNBC Indonesia. Ezaridho added that the rupiah pressure could be accompanied by continued capital outflows, from both foreign and domestic investors. ‘Foreign and domestic capital outflow can be expected to continue,’ he said. A similar view was expressed by Hosianna Situmorang, economist at Bank Danamon Indonesia. He believes the urgency of a rate hike this month is increasingly evident, especially as the rupiah’s deeper depreciation remains unchecked despite BI’s tightening of monetary instruments. ‘Honestly, we see an urgency for BI to raise rates this month,’ Hosianna said. Note that, citing Refinitiv data, in trading on Tuesday (19 May 2026) at 13:18 WIB, the rupiah had weakened 0.51% to Rp17,730 per US.Thisfollowedsharpdeclinesinthepriorsession, whentherupiahcloseddown1.03. Thus, the rupiah remains in a weakening trend, often breaching new psychological levels. In May alone, the rupiah has depreciated 2.46%. Year to date, the rupiah has weakened 6.36% against the US dollar. Juniman, Chief Economist at Maybank Indonesia, who also expects BI to raise the BI Rate by 25 basis points at this meeting, said: ‘We expect Bank Indonesia to raise the BI Rate by 25 basis points to 5.00% in May 2026. This is driven by ongoing pressure on the rupiah from global financial market uncertainty and the impact of rising geopolitical tensions, namely the Iran-Israel-US conflict,’ he told CNBC Indonesia. He added that higher capital outflows from domestic financial markets and still-high global oil prices are also factors pushing BI to consider a rate increase. Nevertheless, not all market participants see BI needing to raise rates soon. Senior Economist at KB Valbury Sekuritas, Fikri Permana, expects BI to keep its policy rate at 4.75%. He said BI’s considerations extend beyond rupiah stability and inflation, to its mandate to maintain domestic economic growth. Therefore, the option to hold rates remains open. These differing views make the May RDG one of the BI meetings most awaited by markets this year. Where in previous months the market consensus tended to point toward holding rates, this time the majority is starting to see a need for monetary tightening to maintain rupiah stability.