Indonesia Interest Rate

Bank Indonesia delivers an off-cycle hike in June

BI-Rate up to an over one-year high: At an unscheduled meeting on 9 June, Bank Indonesia (BI) unexpectedly increased the BI-Rate by a further 25 basis points to 5.50%, following May’s 50 basis point hike. The decision brought the BI-Rate to its joint-highest level in over a year.

Rupiah weakness prompts successive hike: BI said that persistent rupiah weakness required a “follow-up measure” to strengthen the currency against the U.S. dollar and to attract foreign investment. Since BI’s May meeting, the IDR depreciated by more than the Bank had anticipated due to persistent geopolitical conflict, strong demand for foreign currency domestically and investment outflows. The hike was also a “pre-emptive measure” to maintain inflation within the target corridor of 1.5–3.5% in 2026 and 2027, the Bank said, amid the war in Iran and the commodity price spikes it has spurred.

Most panelists expect further rate hikes: BI abstained from explicit forward guidance and a notable number of our panelists are updating their projections following BI’s recent moves. Currently, a majority sees additional rate hikes by December, while a smaller number sees the BI-Rate ending 2026 at current levels. The rupiah’s persistent weakness will likely remain in BI’s focus, as resilient GDP growth—set to remain around 5% for the fifth year running in 2026—should give the Bank room to support the currency with further tightening. The resolution of the Middle East crisis remains a key factor to watch.

Panelist insight: EIU analysts commented on the outlook: “We continue to expect BI to deliver two additional 25-basis-point rate increases in the third quarter, bringing the policy rate to 6% by the end of 2026. The central bank's decision to tighten policy between scheduled meetings suggests that policymakers have become increasingly concerned about the pace of rupiah depreciation and the persistence of external financing pressures. Although the latest measures are likely to provide some support to capital inflows, we expect balance-of-payments pressures and investor caution towards Indonesian assets to remain elevated in the coming months.” Nomura analysts said: “We view today’s decision as only a slight frontloading of the 25bp hike we already expected and hence forecast BI to keep its policy rate unchanged at 5.50% on 18 June. BI is more likely to utilize the other tools (e.g., increasing SRBI yields to promote FX stability), rather than increase the policy rate further, at a time when BI still sees the need to support growth, in our view. […] Still, we acknowledge that uncertainty remains high, and we continue to see the risk BI that could be compelled to deliver more hikes, considering several flashpoints that could lead to a worsening in balance of payment pressures. […] The inflation outlook could deteriorate significantly if a severe El Niño takes hold and drives up headline inflation, prompting BI to consider more rates hikes.”

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