Ankara: Indonesia's central bank raised its key interest rate for a third time in about a month on Thursday, continuing its policy tightening cycle amid global market volatility and pressure on emerging-market assets. Bank Indonesia increased its benchmark BI-Rate by 25 basis points to 5.75%, while also raising the deposit facility rate to 4.75% and the lending facility rate to 6.50%.
According to Anadolu Agency, the bank stated that the decision aimed to strengthen stability while supporting economic growth. The latest move followed a surprise 25-basis-point increase on June 9 and a larger-than-expected 50-basis-point hike in May, with total tightening this year amounting to 100 basis points. Bank Indonesia indicated that the increase was also intended to strengthen the rupiah and attract foreign portfolio investment inflows, as policymakers seek to manage the impact of global uncertainty on domestic financial markets.
The rupiah recovered most of its losses after the decision, while yields on 10-year government bonds rose. However, Indonesian stocks remained lower, declining around 1.5%. Before Thursday's decision, the rupiah had recovered approximately 2% from a record low following last week's surprise rate hike. Bank Indonesia Governor Perry Warjiyo mentioned at a briefing that the rupiah is expected to continue stabilizing, supported by the central bank's policy measures and Indonesia's strong economic fundamentals.
The rate decision came after the US Federal Reserve left interest rates unchanged but signaled support for possible rate increases later this year, adding pressure on emerging-market currencies and assets. Warjiyo noted that Bank Indonesia sees the possibility of further Fed rate hikes to control inflation, with US Treasury yields continuing to rise.
Market analysts have warned that higher interest rates alone may not secure sustained capital inflows unless supported by clearer communication, more predictable regulation, and market-friendly fiscal policy. Concerns have also emerged after the Indonesian government unveiled plans for a new state-backed commodity export agency, raising questions about potential market intervention and disruptions to export flows that support the rupiah. Higher food and energy costs, along with the delayed impact of currency weakness on imported goods, have increased risks that inflation could become more persistent in the coming months.