Macro Update - Policy Rate Updates: BI Delivers Another 25bps Hike to Support Rupiah Stability
BI raised its policy rate by another 25bps to 5.75%, marking the third consecutive rate hike and bringing total tightening to 100bps over the past two months, underscoring the central bank’s strong commitment to restoring external stability. In our view, the move remains primarily focused on supporting further Rupiah appreciation, with the currency strengthening by 0.72% MTD to IDR17,730/USD after recovering below the IDR18,000/USD threshold, while BI also appears increasingly attentive to inflation risks as WPI accelerated to 5.76% YoY in May 26 and core inflation excluding gold rose to 1.63% YoY from 1.36% in Apr 26.
BI raised its policy rate by another 25bps to 5.75%, marking the third consecutive rate hike and bringing total tightening to 100bps over the past two months, underscoring the central bank’s strong commitment to restoring external stability. In our view, the move remains primarily focused on supporting further Rupiah appreciation, with the currency strengthening by 0.72% MTD to IDR17,730/USD after recovering below the IDR18,000/USD threshold, while BI also appears increasingly attentive to inflation risks as WPI accelerated to 5.76% YoY in May-26 and core inflation excluding gold rose to 1.63% YoY from 1.36% in Apr-26.
The sharp increase in SRBI and SBN yields since the beginning of the year has strengthened the attractiveness of Indonesian financial assets and supported BI’s stabilization efforts. As of 18-Jun-26, the 10Y SBN yield had risen by 92bps YTD to around 7.0%, while the 2Y yield increased by 208bps to 7.08%, helping attract foreign inflows of around IDR70tr, while SRBI yields surged by 227bps (6M), 243bps (9M), and 268bps (12M) YTD, lifting foreign holdings in SRBI to IDR102.4tr as of May-26.
Beyond maintaining competitive yields, BI has introduced additional measures to strengthen Rupiah stability and enhance the attractiveness of domestic financial assets. The central bank announced a 10% discount on hedging swap costs for foreign investors and reopened its 3M, 6M, 9M, and 12M repo auction facilities, reflecting a more comprehensive approach to balancing exchange rate stability, portfolio inflows, and adequate liquidity conditions amid a challenging global environment.
Looking ahead, we believe BI still retains room for an additional 25bps rate hike should Rupiah pressures re-emerge, particularly amid an increasingly hawkish global central bank environment and rising inflation risks. The decline in Indonesia’s FX reserves by USD11.6bn YTD suggests that policy rates are becoming an increasingly important stabilization tool alongside SRBI and other market-based measures, as BI seeks to preserve external stability, maintain investor confidence, and sustain the attractiveness of Indonesian financial assets.
