Indonesian Rupiah: BI Expected to Hike Rates to Anchor IDR – UOB

UOB strategists said ahead of the Bank Indonesia policy meeting that the market broadly expects rates to be held steady, but their macro team projects a 25 basis point hike to 6.00% to address depreciation pressure on the Indonesian rupiah. The strategists noted that divergent market views on the Fed's policy path, coupled with rising global inflation, leave the rupiah exposed to significant risks.

**Rate Hike Path and Currency Pressure**

According to UOB's forecast, if this hike materializes, the subsequent policy path may remain tilted toward tightening, with two 25 basis point hikes expected in Q3 2026, followed by another 25 basis point hike in Q4, ultimately pushing the policy rate to 6.50%. Key drivers behind this path include rupiah depreciation risks and uncertainty over the Fed's policy outlook. As of writing, USD/IDR traded near 95.72999, indicating currency pressure has yet to fully subside.

**Market Expectations and Policy Divergence**

Despite UOB's macro team's call for a hike, the market broadly expects Bank Indonesia to hold steady at this meeting, reflecting a clear divergence between institutions and the market on policy timing. The strategists emphasized that with global inflation resurging, Bank Indonesia must balance currency stability against supporting economic growth, with the rupiah's trajectory serving as a key variable in determining policy intensity.

**What to Watch Next**

The market will closely monitor the post-meeting statement for language on the currency and inflation, as well as any signals of further hikes. If the central bank opts to raise rates, the rupiah may find short-term support; if it holds, attention will turn to whether the central bank deploys other tools such as FX market intervention to stabilize currency expectations.