Indonesia’s central bank unexpectedly raised its benchmark interest rate by 25 basis points on Tuesday, citing heightened global volatility and mounting pressure on the rupiah, as policymakers moved to shore up confidence in Southeast Asia’s largest economy.
The move lifted the benchmark rate to 5.5%, more than a week ahead of the bank’s scheduled monthly policy meeting and follows a surprise 50-basis-point increase in May aimed at supporting the currency and containing inflation. Indonesia’s main stock index rose nearly 5% in morning trade following the announcement.
The rupiah has weakened beyond 18,000 per U.S. dollar, its lowest level on record, while the country’s stock market has shed roughly a third of its value so far this year. “This increase is a further step to strengthen the stability of the rupiah exchange rate against the impact of high global volatility due to the war in the Middle East,” Bank Indonesia said in a statement.
The central bank described the rate increase as a pre-emptive measure designed to keep inflation within the government’s target range of 2.5%, plus or minus one percentage point, in 2026 and 2027.
The Apex Bank added that the move was also intended to improve investment returns and attract foreign portfolio inflows.
Despite tightening rules on dollar purchases in recent weeks, authorities have struggled to halt the currency’s decline. The rupiah has fallen more than 7% this year, making it Asia’s worst-performing currency, according to Bloomberg data.
The country has also been hit by rising global oil prices linked to the conflict in the Middle East. Indonesia, a net oil importer faces increased pressure on its external balances and inflation outlook.
The government has maintained heavily subsidised domestic fuel prices, despite higher crude oil costs.
Official data showed Indonesia’s trade surplus narrowed sharply to $89 million in April from $3.3 billion in March, adding to concerns over the country’s economic outlook.