Bank Indonesia raised its benchmark interest rate by 25 basis points in an unscheduled move on June 9, lifting the rate to 5.50% to stabilise the rupiah amid deepening currency weakness and investor concerns [1, 2, 3, 4, 5]. The central bank described the increase as a follow-up measure to counter heightened global volatility triggered by the Middle East conflict and to keep inflation within target for 2026 and 2027 [1].

The rupiah has weakened around 8% so far this year, hitting multiple record lows against the US dollar and ranking among Asia’s worst-performing currencies [6, 7, 8, 4, 5]. Following the rate hike, the rupiah briefly strengthened about 0.7% but later settled near 18,050-18,085 per dollar [1, 2, 3]. Indonesia’s foreign-exchange reserves dropped for a fifth straight month in May to US$144.9 billion, the longest decline since 2018, though they remain sufficient to cover 5.5 months of imports and external debt [6, 9].

Investor nerves have also hit the bond and stock markets. The yield on Indonesia’s 10-year government bonds climbed to 7.14%-7.52%, the highest since 2022 and 2025, reflecting risk aversion amid rupiah pressure [6, 2, 9]. Foreign investors withdrew more than US$3.5 billion from Indonesian equities in 2026, sending the Jakarta stock index down between 30% and 39% this year [6, 9, 7, 8]. However, stocks rebounded by 2%-7.6% on June 9-10 following the rate increase [2, 10].

Authorities, including Bank Indonesia Governor Perry Warjiyo and Finance Minister Purbaya Yudhi Sadewa, pledged joint action between June 4-6 to maintain liquidity and attract capital inflows [7, 8]. Measures include raising the interest paid on government deposits held at the central bank to reduce borrowing costs and draw foreign funds [6, 7, 8].

Market analysts welcomed the rate move but stressed it is insufficient alone to restore confidence. They called for clearer fiscal policies, better governance, and structural reforms to provide sustainable support [11, 12]. Krystal Tan at ANZ said, "For sentiment to improve sustainably, greater policy clarity and reassurance for investors will be needed," citing persistent concerns over policy consistency and fiscal sustainability [12]. Mohit Mirpuri of SGMC Capital added, "The next two weeks are critical. The market is looking for clear signs of fiscal discipline, policy consistency and a strong commitment to macroeconomic stability" [7].

Indonesia’s government recently introduced policies that worried investors, such as new commodity export rules, currency controls, increased parliamentary oversight of the central bank, and political appointments [7, 11, 12]. Josua Pardede of PT Bank Permata noted the rate hike "can be a start to reduce market pressures but it’s still not enough to sustainably turn the market direction" [7].

The central bank and government’s next key test will come as they work to stabilize the currency and financial markets amid ongoing external shocks and domestic economic challenges.