A bundle of Indonesian rupiah and US dollar banknotes arranged 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 will boost efforts to stabilize the currency and attract inflows after the nation’s stocks tumbled at the fastest pace worldwide last week.\u00a0Photographer: Dimas Ardian\/Bloomberg via Getty Images<\/p>\n
Bloomberg | Bloomberg | Getty Images<\/p>\n
Indonesia’ central bank hiked its policy rate<\/a> by 25 basis rates as it seeks to strengthen the local currency that has plummeted to record lows.<\/p>\n The surprise increase brought the 7-day reverse repo rate to 5.5% from 5.25%. Economists polled by Reuters had estimated the country to hold rates. <\/p>\n Besides mitigating the impact of Middle East conflict, the central bank said the move was also a “pre-emptive measure” to maintain inflation within the government’s target range of 1.5% to 3.5% in 2026 and 2027. <\/p>\n “The measure also aims to enhance yields to attract foreign portfolio investment inflows to Indonesia,” the statement added. <\/p>\n Bank Indonesia highlighted that the depreciation of the rupiah was also driven by foreign portfolio investment outflows.\u00a0Investors have fled Jakarta’s equity markets since the start of the year, with the Jakarta Composite tumbling over 35% year to date. <\/p>\n In its bid to shore up the currency, the central bank delivered a larger-than-expected 50 basis points hike in its meeting in May<\/a>, and has intervened in the forex markets.<\/p>\n None of those appear to have helped, with the rupiah weakening against the dollar to a record 18,190 on June 8, despite Jakarta draining its forex reserves<\/a> to prop up the rupiah. On a year-to-date basis, the currency has deprecated over 8% against the greenback.<\/p>\n The surprise hike on Tuesday also comes as inflation in Indonesia sees is creeping up. The latest reading from May showed inflation at 3.08%, up from 2.42% and also higher than Reuters estimates of 2.97%. <\/p>\n Last week, the central bank received a new mandate from Indonesia’s parliament to create “an economic environment \u200bconducive to real sector growth and job creation,” according to Reuters.<\/a> <\/p>\n DBS Group Research said in a note last Friday that despite new mandate, “we expect monetary policy to prioritize financial market stability in the near-term and tighten rates further to defend the currency.”<\/p>\n Rupiah strengthened 0.66% to 18,050 on Tuesday.<\/p>\n