Indonesian Rupiah: BI pause seen as hawkish hold – UOB

UOB Global Economics & Markets Research notes that Bank Indonesia kept its policy rate at 5.75%, opting to let earlier tightening filter through. Despite the pause, the team still expects three further hikes totalling 75 bps by end-2026 to stabilise the Rupiah and inflation expectations, while USD/IDR edged slightly higher after what markets perceived as a hawkish hold.

Further BI hikes expected to support Rupiah

"Bank Indonesia maintained its benchmark policy rate at 5.75% at the Jul MPC meeting, likely choosing to allow the cumulative 100 bps tightening implemented between May and June to fully transmit through the real economy."

"Despite the policy pause, risks on rupiah’s trajectory coupled with market’s divided expectation of US Fed’s policy direction and upside risks to global inflation forecasts amid the rising energy prices continue to underpin our expectation of two additional 25 bps rate hikes in3Q26 and a final 25bps in the final quarter of 2026 to anchor rupiah’s stability and inflation expectations."

"This will bring the policy rate to a terminal level of6.50% by end-2026."

"In South East Asia, USD/IDR inched higher from 17,880 to 17,915, a day after Bank Indonesia (BI) left rates on a perceived “hawkish” hold."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)