Rupiah under mounting pressure as BI rate outlook splits between hold and hike

This step is more realistic given domestic economic conditions are not yet strong enough to withstand the impact of a more aggressive rise in interest rates. Jakarta (ANTARA) – Economists hold differing views on the trajectory of the BI Rate, with some favouring a hold at 4.75% and others predicting a rise to 5%, as the rupiah slides to its weakest level on record at around Rp17,600 per US dollar. Today, or Wednesday (20 May) afternoon, Bank Indonesia (BI) is scheduled to announce its policy rate following the April 2026 Board of Governors Meeting (RDG).

Teuku Riefky, macroeconomist and financial markets analyst at LPEM FEB UI, said in Jakarta on Wednesday that a 25 basis-point (bps) hike to 5% would be appropriate for the central bank given current conditions. While a rate increase could slow credit growth, he said BI’s priority should be rupiah stabilisation.

Indonesia recorded capital outflows of $15 million from the stock market from 15 April–12 May and outflows of $0.4 billion from the government bond market (SBN) from 15 April–8 May, before inflows of around $0.22 billion on 11–12 May. Riefky highlighted the flattening yield curve—the narrowing of the spread between long- and short-term SBN yields—which indicates investors view short-term risks as higher, so outflows from shorter-tenor bonds have been larger than from longer maturities.

To maintain foreign exchange supply and attract inflows, BI has increased the outstanding SRBI by around Rp214 trillion in 2026, while the weighted-average coupon on SRBI rose to 6.4% as of 13 May from 5.89% in mid-April and 4.9% at the start of 2026. Foreign exchange reserves have also been drained by more than $10 billion in the last four months to stabilise the rupiah. However, BI interventions have been deemed less effective as the rupiah continues to weaken.

Riefky noted that the rupiah’s performance is poor compared with other developing economies, with a year-to-date decline of 5.50%, only better than the Turkish lira and Indian rupee.

Although external factors clearly contribute to the rupiah’s depreciation, as with other emerging market currencies, he warned that domestic factors also play a large role, including concerns about fiscal sustainability given a low tax ratio.

Meanwhile, BCA economist David Sumual has a different view. He said BI is still likely to hold the BI Rate as inflation has so far remained within the central bank’s projection. However, if the government adjusts fuel prices, particularly subsidised fuel, the BI Rate could rise more quickly to anticipate higher inflation expectations.

Head of the Macro Economics and Finance Centre at Indef, M. Rizal Taufikurahman, argued that raising the BI Rate is a logical option to dampen rupiah pressure and maintain market confidence. But such a move could risk further constraining credit, consumption, and the real sector, which are already slowing. Conversely, if BI holds at 4.75%, growth room would be preserved but pressures on the rupiah and market perceptions could rise.

He said the most likely path is for BI to hold rates while strengthening stabilisation through forex interventions, SRBI, Domestic Non-Deliverable Forward (DNDF), and liquidity management.

“This step is more realistic given domestic economic conditions are not yet strong enough to withstand the impact of a more aggressive rate hike,” Rizal said.

Maybank Indonesia Global Markets Economist Myrdal Gunarto assessed that a BI Rate rise is not yet necessary, as it could spur higher rates elsewhere that would ultimately burden the real sector, especially amid the expensive dollar and rising costs of expanding business. He sees the rupiah could strengthen without increasing the policy rate, even as financial markets face foreign outflows and rising dollar demand due to seasonal factors such as overseas dividend payments and the Hajj season.

In Myrdal’s view, the rupiah should strengthen if export proceeds are maximised. He argued that aggressive BI monetary intervention could help anticipate potential outflows in financial markets and that the rupiah still has room to strengthen if the trade surplus widens and potential financial outflows remain contained.