Highlights

• Bank Indonesia prioritizes rupiah stabilization over growth support: BI unexpectedly raised its benchmark rate by another 25 bps to 5.50%, only three weeks after a 50 bps increase, signaling growing urgency to contain rupiah volatility and preserve investor confidence amid increasingly challenging global and local (higher inflation on IDR depreciation) conditions.

 

• External and internal vulnerabilities are becoming more visible: On the back of capital outflows foreign exchange reserves fell to USD 144.9 billion, the lowest level since June 2024, while government bond yields rose sharply and the rupiah briefly weakened beyond Rp18,000 per USD, highlighting mounting pressure on Indonesia’s external and internal positions.

 

• Domestic demand shows signs of moderation: Consumer confidence declined to 120.9 in May, the lowest level since September 2025, reflecting weaker assessments of current economic conditions, employment opportunities, and durable goods purchases amid higher borrowing costs and uncertainties.

 

• Government shifts focus toward medium-term growth preservation: Fiscal authorities outlined a growth-oriented 2027 strategy supported by closer coordination among fiscal, monetary, financial-sector, and Danantara-backed investment policies while maintaining active debt financing and infrastructure development plans.

• Global geopolitics and energy security are increasingly shaping Indonesia’s macro outlook: Rising tensions in the Middle East, concerns regarding global energy supply routes, and discussions on upstream oil and gas reforms have elevated energy security into a key macroeconomic priority.