The central bank hiked rates more than expected to curb currency weakness and preempt inflation risks amid geopolitical tensions.
Bank Indonesia increased its benchmark interest rate by 50 basis points to 5.25%, exceeding market forecasts of a 25bp hike. The move aims to bolster the Rupiah and maintain macroeconomic stability amid currency depreciation and declining foreign reserves.
The central bank cited benign current inflation but warned of potential price pressures in the second half of the year due to prolonged geopolitical risks. Growth projections for 2026 remain optimistic, with GDP estimated at 4.9-5.7%, while 2025 forecasts range between 5.8-6.5%.
Analysts expect further hikes of up to 50bp later this year if the Rupiah continues to weaken or geopolitical tensions persist. The policy statement emphasized preemptive action to keep inflation within the 1.5–3.5% target range.