Bank Indonesia unexpectedly raised its benchmark interest rate by 25 basis points to 5.50% in an off-cycle move aimed at stabilizing the rupiah and easing pressure on the country's financial markets.
The decision was announced ahead of a monetary policy meeting scheduled for June 17-18.
The central bank said the rate hike was needed to strengthen the stability of the rupiah exchange rate, attract foreign capital inflows and ensure that the inflation target for 2026 and 2027 can be achieved.
The move follows a 50 basis point rate hike also implemented in May.
Markets reacted positively to the decision with the rupiah strengthening 0.2%, while the Indonesian stock index jumped nearly 5%.
However, government bond yields remained high, reflecting investor concerns about the economy and continued capital outflows.
The extraordinary move comes as the rupiah has fallen about 8% this year, while foreign investors have reportedly pulled more than US$3.5 billion from Indonesia's stock market.
At the same time, the country's foreign exchange reserves also fell for the fifth consecutive month, signaling growing pressure on Southeast Asia's largest economy.
