US Markets
Bank Indonesia Boosts Rates to Strengthen Currency in FX Markets
Citing a weakening national currency in foreign exchange markets, Bank Indonesia raised its benchmark interest rate by 50 basis points to 5.25%, at the conclusion of a policy session on Wednesday.The hike marked the central bank's first rate increase in nearly two years, as monetary authorities sought to strengthen the rupiah, reduce import bills, and keep general inflation within targets.The rate increase is intended "to strengthen the stabilization of the rupiah exchange rate from the high impact of global turmoil due to the war in the Middle East and as a preemptive measure to keep inflation in 2026 and 2027 within the target range of 2.5% plus or minus 1%," said Bank Indonesia, in a prepared statement.In the last 12 months, the rupiah has lost about 7.7% of its exchange value against the US dollar, and had been hitting fresh record lows recently, although on Wednesday the Indonesian currency edged higher against the greenback.In addition to lifting rates, Bank Indonesia also vowed to defend the national currency directly in foreign exchange markets, by using bank reserves to buy rupiahs.The central said it will be "increasing the intensity of foreign exchange interventions to strengthen the stabilization of the rupiah exchange rate through non-deliverable forward overseas market as well as spot transactions and domestic non-deliverable forward transactions in the domestic market."With import and fuel bills rising, Bank Indonesia officials also had eyes on domestic inflation rates.Indonesia's consumer price index (CPI) in April rose 2.42% on year, easing from 3.48% in March, and striking in the middle of the central bank's target range. However, as recently as February the CPI rose by 4.76% on year, and had generally been running hotter by month since early 2025, a possible warning of inflation pressures building up in the economy.Indonesia's economy has been growing, and Bank Indonesia's most-recent forecast was optimistic, perhaps giving the central bank room to tighten.After expanding by 5.39% on year in the fourth quarter of 2025, the nation's gross domestic product (GDP) is expected to grow by 4.9% to 5.7% in 2026, the central bank forecast in March.
^JKSE
