Indonesia's central bank unexpectedly raised its benchmark interest rate in an off-cycle decision to support the rupiah after a selloff in stocks and bonds fueled capital outflows. This surprise tightening on Tuesday helped the currency rebound from record lows and boosted stocks.
The central bank stated the move was a pre-emptive measure to maintain inflation within the government's target range of 1.5% to 3.5%. The rupiah has weakened about 8 percent to become the worst-performing currency in Asia in 2026.
Pressure on the rupiah has been driven by investor concerns over President Prabowo Subianto's big spending plans and a ballooning fuel subsidy budget following the Iran war. Furthermore, foreign-exchange reserves fell for a fifth straight month in May, highlighting the cost of policymakers' efforts to steady the currency after it hit a record low.
Analysts indicate that Indonesia may raise interest rates again to further shield the rupiah and curb market volatility.