The rupiah does not ask for sympathy. It requires consistent policy. When Bank Indonesia raised its benchmark interest rate to 5.75 percent on June 18, 2026, market participants immediately assessed the implications for lending, equities, bonds, and borrowing costs. Higher interest rates are never painless. However, amid pressure from a stronger US dollar, energy market volatility, and portfolio capital outflows, the more important question is not whether higher interest rates are costly, but how much greater the cost would be if policy action were delayed.
The increase in the BI Rate should be understood as an effort to preserve stability rather than as a sign that the government or Bank Indonesia has lost control. In an open economy such as Indonesia, the rupiah is influenced by multiple factors, including international trade, investor sentiment, global yields, geopolitical developments, energy prices, and confidence in fiscal discipline. When these factors move simultaneously, monetary policy must respond swiftly and decisively.
Interest rates are not a solution to every economic challenge. They cannot directly increase exports, expand industrial capacity, improve logistics infrastructure, or encourage export earnings to remain longer within the domestic economy. Nevertheless, higher interest rates provide valuable time to stabilize market expectations, contain imported inflation, and prevent currency depreciation from escalating into a broader confidence crisis. During periods of uncertainty, time itself becomes a valuable policy instrument.
Maintaining rupiah stability also has direct implications for the domestic economy. Exchange rate depreciation affects not only the foreign exchange market but also the prices of imported raw materials, pharmaceuticals, energy, machinery, fertilizers, food, logistics, and overseas education. For households, these pressures appear through gradually rising living costs. For businesses, they translate into higher production costs, narrower profit margins, and greater demand for foreign exchange hedging.
At the same time, higher interest rates should not become the only policy response. Excessively high borrowing costs may reduce credit growth, slow investment, weaken equity valuations, and increase government financing costs. Small and medium-sized enterprises, households seeking mortgages, and companies planning expansion are all affected. Therefore, maintaining stability should not come at the expense of economic momentum.
For this reason, the BI Rate should be viewed as one component of a broader policy mix. Exchange rate stabilization needs to be complemented by measured foreign exchange intervention, stronger Bank Indonesia Rupiah Securities (SRBI), Domestic Non-Deliverable Forward (DNDF) instruments, and effective hedging facilities. Equally important is consistent policy communication. Financial markets do not expect Bank Indonesia to defend a specific exchange rate. Instead, they seek confidence that the central bank will respond decisively to excessive volatility while maintaining inflation within its target range.
The government plays an equally important role. While Bank Indonesia maintains monetary stability, fiscal authorities must preserve policy credibility. Major government programs, including the Free Nutritious Meals Program (MBG) and the Red and White Village Cooperative Program (KDMP), require transparent financing, sound governance, and measurable productivity outcomes. Financial markets are not opposed to public spending. Rather, they expect such spending to create sustainable productive capacity.
The government also needs to strengthen foreign exchange supply through the real sector. Policies encouraging export earnings from natural resources to remain within Indonesia will be more effective when supported by liquid financial instruments, competitive returns, tax certainty, and efficient hedging costs. Such conditions provide exporters with economic incentives to retain foreign exchange domestically.
Businesses likewise have an important responsibility. Companies with foreign currency liabilities should regard hedging as a core element of risk management. Importers need to manage contracts and inventories more carefully, while exporters should recognize that a weaker rupiah does not automatically improve competitiveness when production still depends heavily on imported inputs, technology, energy, and US dollar financing.
Some observers argue that interest rates should remain lower to support economic growth. This perspective deserves consideration because Indonesia needs investment, consumption, and credit expansion. However, allowing the rupiah to weaken without an adequate policy response could ultimately undermine growth by increasing uncertainty, raising risk premiums, and delaying investment decisions.
Under these circumstances, stability should not be viewed as the opposite of growth. Rather, stability provides the foundation upon which sustainable growth can be achieved. The increase in the BI Rate therefore represents a difficult but realistic policy choice aimed at preventing external shocks from evolving into broader domestic challenges.
Ultimately, the effectiveness of this policy depends on how well the time it creates is utilized. The rupiah will become more stable when Bank Indonesia maintains policy credibility, the government preserves fiscal discipline, foreign exchange availability remains sufficient, and businesses manage financial risks responsibly.
A strong nation is not one whose currency never weakens. It is one that knows when to apply the brakes, when to strengthen its economic foundations, and when to move forward again.
Sources: Jawa Pos – BI Rate and the Courage to Prioritize Stability
