Indonesia’s Bank Indonesia hikes rates again, lifting policy rate by 1% in a month

Bank Indonesia announced a fresh 25-basis-point increase in its policy rate, taking the cumulative tightening since mid-May to a full percentage point. The bank stressed that the energy shock triggered by tensions around the Strait of Hormuz had added price pressure to an economy that depends heavily on imported fuel. May’s headline inflation came in at 4.6% year-on-year, above the upper band of the official target.

The primary motivation is to slow the rupiah’s recent slide. On Thursday morning the USD/IDR pair traded above 17,300, a level not seen since late 2024. "Stability is the primary objective of our policy, so we have not closed the door on further tightening if incoming data require it," Governor Perry Warjiyo said.

Indonesian government bond yields traded sideways immediately after the decision and the rupiah’s appreciation was muted. Analysts said the adequacy of Bank Indonesia’s move would depend on U.S. Treasury yields and the trajectory of energy prices in the weeks ahead. The government is separately preparing a fresh package to restructure fuel subsidies.