Rupiah strengthens by 50 basis points after BI raises policy rate

Indonesian rupiah strengthened against the US dollar, closing at Rp17,654 per dollar on Wednesday, 20 May 2026, up 52 points or 0.29 percent from the previous close of Rp17,706 per dollar. The Jakarta Interbank Spot Dollar Rate (JISDOR) also firmed to Rp17,685 per dollar from Rp17,719. Market participants attributed the move to Bank Indonesia’s decisive action in raising the BI Rate by 50 basis points to 5.25 percent at the May 2026 Board of Governors meeting. Tiffani Safinia of ICDX said the rally reflects the policy response and the central bank’s interventions in the FX and government bond markets.

In addition to monetary policy, investor confidence was buoyed by President Prabowo’s speech on the direction of economic and fiscal policy, which is seen as providing clarity for market players. The measure is aimed at keeping inflation within the 2.5% +/- 1 percentage point target for 2026 and 2027. The decision underscores a national monetary policy stance in 2026 that is pro-stability to strengthen Indonesia’s external resilience amid geopolitical tensions, particularly in the Middle East.

Despite the rupiah’s strength, it remains shadowed by near-term challenges, including a weaker IHSG and concerns about outflows of foreign capital. Globally, market participants are cautious ahead of the Federal Open Market Committee (FOMC) minutes and the latest US economic data, with some investors moving towards safe-haven assets like the US dollar and US Treasuries.

An LPEM UI economist advised Bank Indonesia to raise the rate to 5% to curb rupiah weakness, although Mirae Asset forecasts the BI Rate remaining at 4.75%.

The rupiah’s exchange rate against the US dollar is expected to strengthen in July–August 2026 following the 50 bps increase to 5.25% for external stability, according to BI Governor Perry Warjiyo.