Bundles of Indonesian rupiah and US dollar banknotes are lined up at a currency exchange office in Jakarta, Indonesia, on Monday, June 8, 2026. Indonesia’s finance and central bank officials said over the weekend they would step up efforts to stabilize the currency and attract capital inflows after Indonesian stocks fell at the world’s fastest pace. Photographer: Dimas Ardian/Bloomberg via Getty Images
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Indonesia’s central bank raised its policy interest rate by 25 basis points to shore up the local currency, which has plummeted to record lows.
Due to the unexpected rate hike, the seven-day reverse repo rate went from 5.25% to 5.5%. A Reuters poll of economists predicted the country would keep interest rates unchanged.
In addition to mitigating the impact of the Middle East conflict, the Middle East Bank said the move was also a “preemptive measure” to keep inflation within the government’s target range of 1.5-3.5% in 2026 and 2027.
“This measure also aims to increase yields to attract foreign portfolio investment inflows to Indonesia,” the statement added.
Bank Indonesia stressed that the rupiah’s depreciation was also caused by the outflow of overseas portfolio investments. Investors have fled Jakarta’s stock market since the beginning of the year, with the Jakarta Composite Stock Price down more than 35% since the beginning of the year.
Aiming to shore up the currency, the central bank decided to raise interest rates by 50 basis points, more than expected, at its May meeting and intervened in the foreign exchange market.
None of this seems to have helped, with the rupiah falling to a record high of Rp18,190 against the dollar on June 8, despite Jakarta drawing down foreign exchange reserves to prop up the rupiah. On a year-to-date basis, the currency has fallen more than 8% against the dollar.
Tuesday’s surprise interest rate hike came as Indonesia’s inflation has been gradually rising. The latest reading for May showed inflation at 3.08%, up from 2.42% and also higher than Reuters forecast of 2.97%.
Last week, the central bank received a new mandate from Indonesia’s parliament to create an “economic environment conducive to real sector growth and job creation,” according to Reuters.
DBS Group Research said in a report last Friday that despite the new mandate, “we expect monetary policy to prioritize financial market stability in the short term and further rate hikes to protect the currency.”
The rupiah rose 0.66% to Rp 18,050 on Tuesday.
