Bank Indonesia has decided to raise its benchmark interest rate, or BI Rate, by 25 basis points to 5.75% at its Board of Governors Meeting on Tuesday, June 18. 

BI had previously raised the benchmark rate by 75 basis points last month through its monthly Board of Governors Meeting and an off-cycle weekly meeting, in an effort to maintain rupiah exchange-rate stability. 

The deposit facility rate was raised by 25 basis points to 4.75%, while the lending facility rate was increased by 25 basis points to 6.25%. 

“This increase is a further step to strengthen rupiah exchange-rate stability amid persistently high global uncertainty,” Perry said at a press conference following the Board of Governors Meeting on Thursday, June 18. 

He explained that the decision was also a pre-emptive measure to keep inflation in 2026 and 2027 within the government’s target range of 2.5±1%. 

According to Bloomberg data as of 2:49 p.m. Western Indonesia Time, the rupiah stood at 17,873 per US dollar. The currency has weakened by 6.61% so far this year. 

Perry said developments in negotiations between the United States and Iran over the conflict in the Middle East remained dynamic. This, he said, required vigilance, stronger policy responses, and synergy between fiscal and monetary policy to maintain stability and support domestic economic growth. 

BI views the domestic economy as continuing to grow strongly, supported by domestic demand and government consumption, in line with the realization of priority programs, the payment of the 13th-month salary for civil servants, and the distribution of social assistance. The central bank expects Indonesia’s economy to grow within a range of 4.9% to 5.7% this year. 

“BI will continue to optimize its policy mix to strengthen stability and help support economic growth, including through accommodative macroprudential policy and the payment system,” he said. 

Several analysts had previously projected that BI still had room to raise its benchmark rate this year. Bank Central Asia Chief Economist David Sumual said the possibility of a rate hike remained open at the upcoming Board of Governors Meeting, although the probability had slightly declined compared with earlier expectations. 

According to David, the strengthening rupiah and easing geopolitical tensions in the Middle East have given BI room to act more cautiously. Even so, he said the current benchmark rate still lags behind increases in yields on domestic financial-market instruments. 

“BI may raise its policy rate again at the June meeting, although the probability has indeed declined slightly due to the strengthening rupiah and easing tensions in the Middle East,” David told Katadata on Wednesday, June 17. 

He explained that the BI Rate still appeared to be behind the curve when compared with rising yields on Bank Indonesia Rupiah Securities and government bonds. In addition, the rupiah exchange rate still posed risks to inflation. 

David added that the recent increase in Pertamax fuel prices was likely not yet fully reflected in inflation due to the lagging effect, or delayed transmission, to consumer prices. 

At the same time, relatively well-maintained credit growth was seen as giving BI room to tighten monetary policy again. 

Bank Danamon economist Hosiana Situmorang also projected that BI would raise its interest rate again by 25 basis points to 5.75%. According to Hosiana, the current momentum was considered appropriate for BI to strengthen the appeal of domestic assets amid efforts to attract foreign capital back into Indonesia’s financial markets. 

“We expect Bank Indonesia to raise its benchmark interest rate by 25 basis points to 5.75% on June 18,” she said. 

She said the move would be in line with BI’s various policies aimed at increasing foreign investor interest, including incentives in the form of a 10% discount on swap hedging costs for foreign investors conducting hedging transactions. \

On the other hand, Permata Bank Head of Macroeconomics and Market Research Faisal Rachman projected that BI would keep its benchmark rate unchanged at the upcoming Board of Governors Meeting. 

“After the surprise 25-basis-point hike, we project that BI will hold its interest rate at the June 17–18, 2026 Board of Governors Meeting,” Faisal said. 

Faisal said improving global conditions following the peace agreement between the United States and Iran had also pushed down oil prices and global inflationary pressure. This, he said, had revived investor appetite for risk assets, including assets in emerging markets. 

According to him, this condition had begun to be reflected in a reversal of foreign capital flows and a strengthening trend in the rupiah over the past several days. 

Nevertheless, Faisal still saw room for a further 25-basis-point rate increase in the third quarter of 2026. This was in line with domestic inflationary pressure that could rise due to the previous weakening of the rupiah, which had already contributed to higher prices for imported goods. 

In addition, he said the risk of a wider current account deficit could also increase amid a slowing global economy that is weighing on exports. 

“The market also still sees the Fed as likely to remain hawkish because the US labor market remains strong and uncertainty over the trade war has not fully subsided,” he said. 

This article is published in partnership with Katadata 

Original article here