Indonesia: Bank Indonesia hikes again in June
BI-Rate up by 100 basis points since May: At its latest meeting on 18 June, Bank Indonesia (BI) raised the BI-Rate by 25 basis points to 5.75%, bringing the rate to its highest level in over a year. The decision followed a same-sized hike at an unscheduled meeting on 9 June and May’s 50 basis point increase. BI has become one of ASEAN’s most hawkish banks amid the Iran energy crisis, having delivered a cumulative 100 basis point increase in less than a month.
Recent rupiah weakness prompts successive hike: Prolonged depreciatory pressures on the rupiah motivated the back-to-back hike, though BI noted that the currency appreciated against the USD in mid-June. The rupiah has weakened in recent months amid elevated uncertainty caused by the geopolitical conflict in the Middle East, strong demand for foreign currency domestically and investment outflows. The hike also aimed to maintain inflation within the target corridor of 1.5–3.5% in 2026 and 2027 amid the rupiah’s weakness fanning imported price pressures and the war in Iran spurring commodity price spikes.
Further rate hikes are likely: BI abstained from explicit forward guidance regarding future policy rate changes, and a notable number of our panelists are updating their projections following BI’s recent hiking spree. Currently, over half of our polled analysts see additional rate hikes by December, while the rest see the BI-Rate ending 2026 at its current level. Maintaining the rupiah’s stability will likely remain the BI’s focus, as resilient GDP growth—set to remain around 5% for the fifth year running in 2026—should give the Bank room to support the currency with further tightening.
BI reconvenes on 21–22 July.
Panelist insight: EIU analysts commented on the outlook:
“With the rupiah likely to remain prone to episodic bouts of depreciation, we believe that BI will continue to lend support via policy tightening. Our baseline forecast is for one more 25-basis-point increase to the policy rate in July, taking the policy rate to 6%. We assign a relatively high probability (30-40%) of an additional increase in August. We expect BI to begin cutting again in the second half of 2027. This will be enabled by softer global oil prices, which will reduce inflation risks and reduce pressure on the fuel subsidy bill, hence alleviating fiscal concerns and capital outflow pressures.”
Nomura analysts said:
“We revise our forecast and now expect BI to hike by an additional 50bp, delivering 25bp each in July and September and thus bringing the policy rate to 6.25% this year. This reflects our view of persistent balance of payments pressures, as we continue to forecast a widening of the current account deficit in coming quarters. We have been flagging a potential credit rating outlook downgrade to ‘negative’ by S&P in late June/July, which could trigger capital outflows and add to IDR depreciation pressures near term.”