Indonesia raises rates in surprise move to support sinking rupiah

[JAKARTA] Indonesia’s central bank raised interest rates by 25 basis points on Tuesday (Jun 9) in an unexpected off-cycle rate hike, taking the benchmark rate to 5.5 per cent as it moves to stabilise the rupiah.

Bank Indonesia (BI) said in a statement that the off-cycle rate hike was necessary because “the rupiah exchange rate has weakened more than expected” since its last meeting.

The rupiah has been under mounting pressure for weeks, and is one of the world’s worst performing currencies, falling 8 per cent yeat to date and 7 per cent since the Iran war erupted.

The currency strengthened slightly to 18,085 after the decision, a day after touching a record low of 18,190 per US dollar. In the past three weeks it experienced its steepest drop since 2020.

BI hiked rates by a higher than expected 50 basis points in its last meeting in May. But even that hike and a US$12 billion drop in 2026 in Indonesia’s foreign exchange reserves, which the central bank uses to defend the rupiah, have not been able to shore up the currency.

“This rate hike is a further step to strengthen the rupiah’s exchange rate stabilisation against the impact of high global volatility caused by the war in the Middle East and a pre-emptive measure to maintain inflation in 2026 and 2027 within the target range,” BI said.

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“This policy is also intended to increase returns by attracting foreign portfolio investment inflows into Indonesia,” it added. REUTERS