BI has raised rates by a total of 100 basis points since May in a bid to attract foreign inflows to shore up the rupiah, which has come under pressure amid concerns about Indonesias fiscal health, the independence of its central bank and controversial commodity export policies.

The rupiah strengthened a touch to 17,875 per dollar as of 0855 GMT, versus 17,898 before BIs press conference.

Since falling to an all-time low of 18,190 a dollar on June 8, the rupiah has recovered but continued to trade near the 18,000 mark.

Instead of another hike, BI offered incentives including reducing the cost of FX hedging transactions with the central bank and encouraging the use of currencies other than the U.S. dollar to aid the rupiah, Governor Perry Warjiyo said during the online press conference.

Today BI had two options: increase the BI rates with the consequence that domestic rates will also increase, or what we decided to do today, which is not to hike rates but increase incentives to attract the flow of foreign portfolio, he said.

These incentives are more effective to attract foreign investment and control the exchange rate without impacting domestic interest rates. This is what we chose, Warjiyo said.

BI SEEN PRESERVING POLICY SPACE IN CASE OF FUTURE VOLATILITY

On top of domestic concerns, the war in Iran and its impact on oil prices have also triggered outflows from Indonesia, a net-oil importing country. Warjiyo said the recent re-escalation in the Middle East has increased global uncertainty.

BI likely chose to preserve policy space to respond should rupiah volatility intensify, either due to a further escalation in geopolitical tensions or a repricing of U.S. Fed tightening risks by financial markets, DBS economist Radhika Rao said, maintaining her view BI could deliver another hike in the second half.

Many central banks in both emerging and developed markets around the world have begun raising rates to contain inflation stemming from the conflict in the Middle East.

Warjiyo said he remained certain that Indonesias inflation rate would stay within BIs 1.5% to 3.5% target range until 2027, with core inflation under 3%, even as he flagged risks from the impact of the El Nino weather pattern on food prices. Inflation in June was 3.34%.

BI also introduced changes to its liquidity policy intended to address uneven distribution among banks. On aggregate, banks have more than enough for lending, BI officials said.

BI kept its GDP growth outlook within the 4.9% to 5.7% range this year.

Source: msn.com

July 31th, 2026