By Paul Sutaryono
With bold determination, Bank Indonesia (BI) raised its benchmark interest rate by 50 basis points (bps) (0.50 percent) from 4.75 percent to 5.25 percent on May 20, 2026. It suddenly rose another 25 bps (0.25 percent) to 5.50 percent on June 9, 2026. The hike was aimed at stabilizing the rupiah’s exchange rate against the U.S. dollar. To what extent has this move succeeded in stabilizing the rupiah’s exchange rate against the U.S. dollar?
In recent weeks, the rupiah’s exchange rate against the US dollar has become increasingly concerning, hitting the psychological level of Rp18,000 to reach Rp18,141 as of June 9, 2026, according to the JISDOR rate. This figure has continued to rise from Rp18,039 on June 5, 2026, and Rp18,171 on June 8, 2026.
JISDOR is a reference rate that represents the exchange rate of the rupiah against the US dollar from interbank transactions in the foreign exchange (forex) market, including transactions with banks abroad. The JISDOR rate was first published on May 20, 2013.
Various Benefits
Consequently, the Bank of Indonesia (BI) immediately raised its benchmark interest rate. The question is: to what extent can this stabilize the rupiah’s exchange rate against the U.S. dollar?
First, the central bank’s move is seen as appropriate, aimed at stabilizing the rupiah’s exchange rate against the volatile U.S. dollar. Wild. For exporters, the more the rupiah depreciates, the happier they are because they will earn a higher exchange rate differential. Until now, export and import transactions have been conducted in foreign currency.
However, the most important thing for business actors is certainty. For that reason, business actors will certainly reject uncertainty when regulations frequently change rapidly.
Just look at how the government immediately issued regulations centralizing overseas exports of natural resources (SDA) through Danantara Sumber Dana Indonesia (DSI), a state-owned enterprise (SOE) dedicated to exports. This new SOE was established by the Danantara Investment Management Agency (BPI) on May 18, 2026.
Yet previously, the government had revised regulations regarding export proceeds (DHE) for natural resources through centralization via state-owned banks. Does that mean the latest regulation failed?
Second, what is certain is that the increase in the benchmark interest rate will drive up deposit interest rates. Why? Because the cost of funds is becoming more expensive. Consequently, lending rates may also rise, starting with an increase in deposit interest rates.
Third, unfortunately, lower- and middle-income households planning to take out a mortgage will be in for a rough time. This is because mortgage interest rates are also set to rise—with the exception of subsidized mortgages for low-income households (MBR) through the Housing Financing Liquidity Facility (FLPP) program.
Mortgage borrowers with floating rates may also experience an increase in their current mortgage interest rates. Typically, banks are more likely to raise floating-rate mortgages when the BI benchmark rate surges. However, the reverse is not necessarily true. Therefore, when the BI benchmark rate is high, prospective mortgage borrowers are strongly advised to choose fixed rates.
Currently, the government is developing a mortgage program with terms of up to 40 years. The aim is to lower monthly installments while extending the loan term. Is this plan realistic?
Consider the following example. What happens when a borrower with a bachelor’s degree starts working at age 23 and retires at age 56? This means they would still be obligated to make payments until age 63 (23 + 40 years).
Will that customer be able to pay off the mortgage after retirement? It’s very difficult! Especially since, generally, customers also have car or motorcycle loan installments in addition to their mortgage. For that reason, it would be better to shelve that plan.
Fourth, indeed, the BI’s strategy will be more appealing to investors. When the benchmark interest rate rises, the yield spread between Government Securities (SBN) and U.S. Treasuries widens further. This means global investors will return to Indonesia with more attractive incentives.
Fifth, in reality, it is truly difficult for Indonesia to counter global sentiment on its own. Therefore, the BI must continue to intervene in the market to control the rupiah’s exchange rate against the US dollar.
However, this will deplete foreign exchange reserves. As of May 2026, foreign exchange reserves stood at 144.9 billion US dollars, down from 146.2 billion US dollars in April 2026. In January 2026, foreign exchange reserves peaked at 154.6 billion US dollars. Unfortunately, reserves subsequently continued to decline to 151.9 billion US dollars and 148.2 billion US dollars in February and March 2026, respectively.
Additionally, BI is required to continue conducting auctions of Bank Indonesia Rupiah Securities (SRBI) and SBN repos. SRBI are short-term securities (up to 12 months) issued by BI as debt instruments backed by underlying SBN assets. This monetary instrument aims to deepen the money market, attract foreign capital, and maintain the stability of the rupiah exchange rate.
These “double-pronged” market operations aim to ensure that increases in BI’s benchmark interest rate are increasingly effective in stabilizing the rupiah exchange rate.
Sixth, however, the hope that global investment will soon flow into Indonesia’s financial markets (capital inflows) needs to be tempered for now. That hope is not likely to materialize in the near future. At the very least, the sweet fruits of these efforts will not be reaped for another six months or even longer.
Why? Naturally, the market will be watching for consistency in BI’s policies, political risks, and national economic fundamentals. In addition, the market will also take fiscal discipline and policy into account.
Just look at the 2026 State Budget (APBN), which is designed with a deficit target of Rp 689.1 trillion, equivalent to 2.68 percent of the gross domestic product (GDP). As a reminder, state revenue stands at Rp3,153.9 trillion and state expenditure at Rp3,842.7 trillion.
Data shows that the APBN deficit as of the end of May 2026 reached Rp180.4 trillion, or 0.70 percent—up from Rp164.4 trillion, or 0.64 percent of GDP, as of April 2026. The main cause of the state budget deficit is the surge in government spending, which has outpaced government revenue. Essentially, the budget deficit remains below the safe threshold of 3 percent of GDP.
Furthermore, monetary policy by the BI and fiscal policy by the government (Ministry of Finance) must be aligned. They must not conflict with one another.
Seventh, why can’t the effects of BI’s benchmark interest rate hike be reaped immediately? Don’t forget that the weakening of the rupiah reflects a decline in market confidence regarding Indonesia’s economic conditions.
A comprehensive assessment that encompasses political, economic, and financial risks is reflected in the country risk rating. Currently, Indonesia’s risk is classified as moderate.
Political risk includes the potential for changes in government policy, legislation, and political stability. Economic risk includes fluctuations in the exchange rate of the rupiah against the U.S. dollar, foreign exchange reserves, and the country’s ability to repay foreign debt. Financial risk includes the possibility of capital outflows and foreign exchange restrictions that could disrupt international transactions.
Country risk is one of the primary considerations for foreign investors long before they make an investment. Therefore, the government must manage country risk with careful calculation and consideration.
Eighth, market confidence is also reflected in the capital markets and stock markets. Recently, Morgan Stanley Capital International (MSCI) froze or postponed the rebalancing of Indonesian stocks because global investors are concerned about the transparency of the capital markets.
