Indonesian Rupiah rises following BI off-cycle 25-basis-point rate hike

USD/IDR halts its four-day winning streak, trading around 18,070 during the Asian hours on Tuesday. The pair depreciates as the Indonesian Rupiah (IDR) gains ground after Bank Indonesia (BI) raised interest rates by 25 basis points in an ​unexpected off-cycle rate hike, taking the benchmark rate ‌to 5.50%.

Bank Indonesia (BI) said in a statement posted on its website that the off-cycle rate ​hike was necessary because "the rupiah exchange rate has weakened ​more than expected" since its last meeting. The IDR hit an all-time low of 18,247 on Monday.

The Rupiah may again come under pressure due to heightened global risk aversion, domestic fiscal anxieties, new commodity export policies, and growing market skepticism regarding Bank Indonesia’s (BI) operational autonomy.

Adding to these challenges, BI reported that foreign exchange reserves fell to a two-year low of USD 144.9 billion in May 2026, down from USD 146.2 billion the previous month. This decline, marking the lowest level since June 2024, was primarily driven by government external debt repayments and aggressive central bank interventions to stabilize the IDR amid seasonal domestic demand for foreign currency and volatile global markets.

Investor confidence has been further tested by political developments under Indonesian President Prabowo Subianto, who took office in 2024. Investors are increasingly concerned that the plunging currency could derail his growth agenda, as his administration faces criticism for undoing decades of spending discipline. In particular, ambitious and costly campaign promises, such as providing free meals for millions of school children, have sparked fears of fiscal slippage and eroded trust among international investors.

Despite these macroeconomic pressures, Indonesia’s local financial markets managed a brief reprieve on Tuesday. The IDX Composite index bounced back by 4.74%, to reach near 5,600 at the time of writing, halting a painful five-session losing streak. This technical recovery was driven by bargain hunters stepping in after the index plummeted to its weakest level since late 2020 on Monday. Local market sentiment was also buoyed by strong domestic indicators, including data showing a surge in tax revenue during the first five months of 2026, which the government highlighted as a sign of economic recovery, alongside a 14% year-over-year expansion in adjusted base money (M0) for the second consecutive month.

Meanwhile, the upside for the USD/IDR pair remained capped amid a broader retreat in the US Dollar (USD). The Greenback extended its losses worldwide following a major geopolitical breakthrough in the Middle East, where Iran and Israel agreed to a halt in mutual attacks. This significant de-escalation, sparked by a direct appeal from US President Donald Trump, has injected fresh risk-on optimism into global markets and renewed hopes that comprehensive peace negotiations can finally move forward.