--- title: "Indonesia's Central Bank Faces Tough Call as Rupiah Slides to Record Low" type: "News" locale: "en" url: "https://longbridge.com/en/news/286889058.md" description: "Indonesia's rupiah has hit a record low, prompting speculation that the central bank may raise interest rates to stabilize the currency. Analysts are divided on the potential rate hike, which could support the rupiah but may also hinder economic growth. Concerns about inflation and fiscal stability are growing, with rising government bond yields and a significant drop in the Jakarta Composite Index. The central bank's upcoming decision is critical amid ongoing geopolitical tensions affecting energy prices." datetime: "2026-05-19T09:50:28.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/286889058.md) - [en](https://longbridge.com/en/news/286889058.md) - [zh-HK](https://longbridge.com/zh-HK/news/286889058.md) --- # Indonesia's Central Bank Faces Tough Call as Rupiah Slides to Record Low By Ying Xian Wong and Fabiana Negrin Ochoa A fresh bout of risk-off sentiment sent the rupiah to another record low on Tuesday, complicating matters for Indonesia's central bank ahead of its rate-setting meeting. Rupiah stability is a core mandate for Bank Indonesia, and the continued depreciation is fueling expectations that it could raise interest rates this week--a move that would end a pause stretching back to September 2025. Wednesday's decision could easily go either way, analysts say. Tighter policy could support the rupiah but risks undermining growth at a time of heightened uncertainty. BI may instead choose to stay on the sidelines and rely on foreign-exchange intervention. It's a trade-off facing other central banks in Asia, where many economies depend on energy imports from the Middle East. If the conflict drags on and triggers a broader rise in inflation, analysts expect more hawkish pivots ahead. So far, the energy shock hasn't fueled inflation in Indonesia thanks to government measures such as fuel subsidies. But gauges of factory activity suggest businesses are starting to feel the squeeze from rising costs. "We believe Indonesia's window of rising growth and low inflation is likely to close soon in the face of the energy crisis," HSBC economists wrote in a note. They now expect a rate hike this week because of the rupiah's sharp weakness. Even if BI holds steady, they still project two rate increases this year, stopping short of a more aggressive call on expectations that growth will slow. Concerns about a global inflation surge are mounting as the conflict drags on, reflected in the recent rise of government bond yields across markets. For Indonesian assets, those fears are compounding existing concerns about the government's fiscal position. Expanding social programs and ballooning subsidies have fueled worries about a breach of the fiscal-deficit cap. Investability concerns raised by index providers MSCI and FTSE Russell have further weakened sentiment. Earlier this week, the yield on Indonesia's 10-year government bond rose to its highest level in more than a year, at around 6.86%. On Tuesday, the dollar hit another record high of 17,705 rupiah, LSEG data showed, making the rupiah the worst-performing Asian currency so far this year. Indonesia's benchmark Jakarta Composite Index has fallen more than 23% so far in 2026. Against that backdrop, DBS's Sherilyn Chew sees scope for a defensive rate hike by BI this week to help anchor expectations at the margin. Still, doubts exist about how effective a rate hike would be at steadying the rupiah. For Capital Economics' Jason Tuvey, tighter policy would at best provide a brief respite. "We think investor concerns about the policymaking environment are the main factor behind the rupiah's struggles," said Tuvey. BI has already used nonmonetary tools to stabilize the currency, including tightening rules on dollar buying, and has vowed to keep defending against excess volatility. But that may not be enough. "Ultimately what's needed is a clear shift in direction by the government towards more investor-friendly policymaking," or risk premiums on Indonesian assets could rise further and place renewed pressure on the rupiah, Tuvey said. \--Amanda Lee contributed to this report Write to Ying Xian Wong at yingxian.wong@wsj.com and Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com (END) Dow Jones Newswires May 19, 2026 05:36 ET (09:36 GMT) Copyright (c) 2026 Dow Jones & Company, Inc. ### Related Stocks - [00005.HK](https://longbridge.com/en/quote/00005.HK.md) - [HSBC.US](https://longbridge.com/en/quote/HSBC.US.md) - [MSCI.US](https://longbridge.com/en/quote/MSCI.US.md) - [D05.SG](https://longbridge.com/en/quote/D05.SG.md) - [DTIW.SG](https://longbridge.com/en/quote/DTIW.SG.md) - [HSBA.UK](https://longbridge.com/en/quote/HSBA.UK.md) ## Related News & Research - [Inside The AI Chip Crunch: Intel Pressures PC Makers To Upgrade Fast](https://longbridge.com/en/news/287068550.md) - [Go Big or Go Home? 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