MUFG’s Michael Wan highlights that Bank Indonesia (BI) surprised markets by raising the BI-Rate 50 basis points to 5.25%, the first hike since April 2024 and first 50bp move since November 2022. Governor Warjiyo framed the move as defending Indonesian Rupiah (IDR) stability and expects the Rupiah to strengthen as domestic FX demand eases from July, with USD/IDR already slipping.

Bank Indonesia shocks with 50bp hike

"Indonesia was the standout story in Asia on Wednesday, with two major policy developments landing simultaneously. Bank Indonesia raised the BI-Rate by 50 basis points to 5.25% — the first hike since April 2024 and the first 50bp move since November 2022 — surprising the vast majority of market participants, with only one of 41 surveyed economists having forecast a move of that size."

"Governor Warjiyo framed the decision as a measure to reinforce rupiah stabilisation against heightened global volatility, and stated that the central bank expects the rupiah to strengthen with domestic FX demand likely to ease from July."

"USD/IDR slipped as much as 0.5% to 17,610 on Wednesday — its biggest single-day gain since early April — while the 10-year Indonesian government bond yield rose 4 basis points to 6.81%."

"Separately, President Prabowo announced in a parliamentary address that Indonesia will centralise exports of palm oil, thermal coal, and ferroalloys through a single state-owned enterprise — reportedly to be named PT Danantara Sumberdaya Indonesia — supervised by Danantara and set to begin operations as early as June 2026."

"The policy triggered sharp equity losses: the Jakarta Composite fell 3.5% on Tuesday when rumours first circulated, extending its year-to-date decline to over 26%. The near-term concern for capital flows is that while centralised commodity export receipts could in theory improve FX repatriation over time, the policy has raised immediate questions around governance and investor predictability."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)