Bank Indonesia raises rates again as Rupiah hits record low against US dollar

Bank Indonesia raised its benchmark interest rate on Tuesday in an unscheduled move aimed at stabilising the Rupiah, after the currency weakened to its lowest level in Indonesia’s history against the US dollar.

The Weekly Board of Governors Meeting of Bank Indonesia decided to raise the BI-Rate by 25 basis points to 5.50%. The central bank also increased the Deposit Facility rate by 25 basis points to 4.50% and the Lending Facility rate by 25 basis points to 6.25%.

Bank Indonesia said the decision was taken to strengthen Rupiah exchange rate stabilisation amid heightened global volatility caused by the conflict in the Middle East. The central bank also said the move was a pre-emptive measure to keep inflation in 2026 and 2027 within the government’s target range of 2.5±1%.

The Rupiah has come under severe pressure in recent weeks. At the end of May 2026, the currency stood at IDR 17,883 per US dollar, weakening 6.95% year-to-date. It later depreciated further to around IDR 18,171 per US dollar, marking an 8.67% decline.

According to multiple sources, this represents the weakest level of the Rupiah in modern Indonesian history against the US dollar. In 2026, the Rupiah has also ranked as the worst-performing major Asian currency, making this period historically significant in terms of depreciation.

In Asia, the Rupiah is among the weakest-performing currencies in 2026. Based on year-to-date movement against the US dollar, it ranks as the worst-performing major Asian currency, with depreciation of around 8% to 9%. This places the Rupiah below other regional currencies that have also faced pressure from the stronger US dollar, capital outflows, and global risk aversion.

The pressure has occurred despite Bank Indonesia’s continuing intervention in the foreign exchange market. Indonesia’s foreign exchange reserves fell to US$144.9 billion at the end of May 2026, down US$1.3 billion from the previous month. Over the first five months of 2026, reserves declined by US$11.6 billion, the deepest fall in the past five years.

Bank Indonesia said the decline in reserves was affected by government external debt payments, seasonal foreign exchange demand, and exchange rate stabilisation measures. The central bank maintained that the reserves remained adequate, equal to 5.6 months of imports or 5.5 months of imports and government external debt payments, above the international adequacy standard of around three months of imports.

Alongside the interest rate increase, Bank Indonesia announced several additional measures to support the Rupiah. These include raising the interest rate structure of Bank Indonesia Rupiah Securities, known as SRBI, across six-, nine-, and 12-month tenors. The central bank said the higher returns are intended to keep Indonesian portfolio instruments competitive with those of other countries.

Bank Indonesia will also provide a 10% reduction in the hedging swap rate for foreign investors. The measure is intended to make foreign investment in Indonesia more attractive by reducing the cost of currency hedging.

The central bank also reopened repo auction windows for tenors of three, six, nine, and 12 months for banks. The measure is intended to maintain sufficient liquidity in the money and banking markets, with a target of double-digit growth in primary money.

Bank Indonesia said it would increase the intensity of monetary operations in both Rupiah and foreign currencies. Rupiah operations will be strengthened through two SRBI auctions per week, while foreign exchange operations will continue through spot, domestic non-deliverable forward, and overseas non-deliverable forward transactions.

The policy move follows heavy pressure on Indonesian financial markets. Foreign investors recorded net sales of IDR 15.43 trillion in the government securities market from the end of 2025 to May 2026. In the equity market, foreign outflows reached IDR 53.97 trillion year-to-date.

Market indicators also reflected the pressure. The Jakarta Composite Index fell to around 5,342, 10-year government bond yields rose to 7.14%, and Indonesia’s 10-year credit default swap increased to 148.61 basis points.

Bank Indonesia said it would continue to strengthen coordination with the Ministry of Finance to stabilise the Rupiah. The central bank and the government said on 6 June that fiscal and monetary coordination would be used to increase the attractiveness of Indonesian assets, particularly SRBI and government securities.

The authorities also said they would maintain adequate liquidity in the money and banking markets through government cash management at Bank Indonesia.

Bank Indonesia said the policy mix was aimed at maintaining macroeconomic stability, supporting external resilience, and ensuring that inflation remains within target. The central bank also stated that Indonesia’s economic fundamentals remained strong and resilient despite global volatility.

The latest rate increase means Bank Indonesia has raised its benchmark rate twice in less than a month. In May 2026, the central bank raised the BI-Rate by 50 basis points to 5.25%. Tuesday’s move brings the rate to 5.50%, as policymakers intensify efforts to contain the Rupiah’s depreciation and restore foreign investor inflows.