Bank Indonesia kept the BI Rate at 5.75%, opting to back the rupiah through targeted capital-flow incentives rather than additional tightening. A Bloomberg survey showed analysts were evenly split, though a slight majority looked for a 25bp rise. Policymakers considered another hike but flagged the risk to domestic borrowing costs and consumption after raising rates by 100bp over two months. Instead, BI moved to cut hedging costs and strengthened macroprudential liquidity tools, a strategy akin to the Reserve Bank of India’s use of capital-flow measures.
Rupiah Pressures and Policy Response
The rupiah has faced pressure this year as oil prices rose and concerns grew around fiscal discipline and policy credibility. USD/IDR has retreated from above 18,200 to around 17,900, easing immediate strain, but the currency remains exposed to renewed safe-haven demand for USD and ongoing fiscal-management worries. Further gains are seen as contingent on improved policy credibility and continued foreign capital inflows, while BI left open the possibility of another 25bp increase later this year if depreciation pressures return.
