In a surprise move, Indonesia's central bank increased its benchmark interest rate during an unscheduled meeting on Tuesday, aiming to bolster the Indonesian rupiah after a wave of market selling severely impacted the currency and the nation's bond market.
The central bank announced it would raise the key rate by 25 basis points to 5.5%, acting ahead of its scheduled policy meeting on June 17-18. This follows a larger-than-expected 50-basis-point hike implemented by the bank in May.
Following the announcement, the Indonesian rupiah strengthened against the US dollar, rising 0.4% to 18,098. The yield on the 5-year Indonesian government bond held onto its earlier gains, climbing 13 basis points to 7.48%.
The central bank stated that it deemed further action necessary to reinforce the stability of the rupiah by increasing yields and providing various incentives to encourage foreign capital inflows.
The statement also noted that stabilizing the rupiah's exchange rate is intended to maintain the external resilience of Indonesia's economy and to ensure the achievement of its inflation targets for 2026 and 2027.
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