Overview
- Bank Indonesia raised its benchmark lending rate by 25 basis points to 5.50% in an off‑cycle decision on June 9 to stem a sharp fall in the rupiah.
- The central bank and finance ministry agreed to pause aggressive liquidity injections and the government raised retail gasoline prices by about 32%, actions that together produced a modest market rebound.
- The rupiah recovered more than 1% and the Jakarta stock index posted strong gains after the moves, but analysts expect further rate increases at upcoming meetings.
- Foreign exchange reserves fell to US$144.9 billion at the end of May, showing the cost of defending the currency while subsidies for fuel, power and fertiliser surged and widened fiscal pressure.
- Investor concern centers on perceived erosion of central bank independence and large, unpredictable fiscal programs under President Prabowo, which could keep capital flows weak and require both monetary tightening and clearer fiscal credibility to restore confidence.