Bank Indonesia just did something it hasn’t done in eight years: raise interest rates outside of a scheduled policy meeting. The central bank hiked its benchmark 7-day reverse repo rate by 25 basis points to 5.50% on June 9, a move that caught markets off guard and underscored just how seriously policymakers are taking the rupiah’s freefall.
This isn’t a one-off panic button. It’s the second rate increase in three weeks, following a larger 50 basis point hike on May 20 that marked BI’s first tightening since April 2024. Together, the back-to-back moves have pushed the benchmark rate up 75 basis points in less than a month.
What’s driving the urgency
The rupiah has been hitting successive record lows against the US dollar, and the culprit is a familiar cocktail: escalating geopolitical tensions in the Middle East paired with broader global market volatility. The combination has triggered intensified capital outflows from Indonesia in recent months, putting sustained downward pressure on the currency.
Higher interest rates, in theory, offer better returns on rupiah-denominated assets, which should encourage foreign portfolio inflows back into the market. BI has also signaled it will pair rate hikes with direct forex interventions, essentially a two-pronged defense strategy for the currency.