FX.co ★ Rupiah Strengthens on BI Rate Hike Bets

The Indonesian rupiah strengthened to around IDR 17,900 per US dollar on Tuesday, rebounding after briefly nearing the 18,000 level in the previous session, as traders positioned ahead of the central bank’s policy decision. Markets widely expect Bank Indonesia to raise its benchmark interest rate by 25 basis points to 6.0% on Wednesday, as policymakers begin their two-day meeting today.

Between May and June, the central bank lifted borrowing costs by a cumulative 100 basis points to bolster the rupiah and safeguard financial stability. At the same time, the government has stepped up efforts to curb inflation after June’s reading hit the upper end of Bank Indonesia’s 1.5%–3.5% target range, including measures aimed at stabilizing food prices.

Upside for the rupiah remained limited by elevated global oil prices, which risk increasing fiscal pressures. On the external front, May recorded Indonesia’s first trade deficit in six years, eroding support from the trade balance. Globally, the US dollar index continued to climb as escalating US–Iran tensions rekindled inflation fears and reinforced expectations of further monetary tightening.