The rupiah plunged 7.6% as Indonesia's central bank implemented Danantara policy, resorting to aggressive measures to combat the crisis.

KResearch analyzes the Indonesian government's Danantara policy, which has wreaked havoc on the rupiah, causing it to plummet 7.6% and forcing the central bank to resort to an all-out defense strategy, raising interest rates unexpectedly.

On June 10, 2026, Dr. Tatsawan Khaoupatham, Senior Research Officer at Kasikorn Research Center (KResearch), stated in an analysis that the Bank of Indonesia (BI) raised its interest rate by 25 basis points to 5.50% at its monetary policy meeting on June 9, ahead of its scheduled monetary policy meeting on June 17-18. This brings BI's total interest rate hike to 75 basis points within three weeks, following a 50 basis point increase at its May meeting, which exceeded market expectations. Simultaneously, BI also raised its deposit rate to 4.50% and its lending rate to 6.25%.

This interest rate hike marks the second unscheduled increase in eight years and reflects the fact that the fragility of the rupiah has not been sustainably resolved. The challenges this time differ from 2018, when BI previously raised interest rates unscheduled to slow capital outflows from emerging markets and reduce pressure from rising US interest rates, primarily due to external factors.

While the current weakening of the rupiah is primarily due to domestic factors stemming from confidence in the government's economic policy direction, in addition to the impact of higher energy prices resulting from conflicts in the Middle East, this pressure is reflected in the rupiah's 7.6% year-to-date depreciation to 18,058 rupiah/dollar as of June 9, 2569. Meanwhile, foreign investors have sold over US$3.5 billion worth of Indonesian stocks net, causing the stock market index to fall by more than 38.2% (June 8) to its lowest level in 20 years.

From external pressure to close scrutiny of domestic policy directions.

Dr. Tatsawan further stated that in early 2569, the Indonesian financial market faced pressure from several external factors, including conflicts in the Middle East that caused oil prices to rise, increasing the fiscal burden of subsidizing oil prices, and capital outflows from emerging markets.

However, in the second quarter, the market began to place more emphasis on domestic factors, particularly policy changes under President Prabowo Subianto.

On May 20, 2569, the government announced several measures to reintroduce foreign currency into the economy and support the rupiah, including centralizing the export of key commodities such as coal, palm oil, and ferroalloys through an entity under the control of the Danantara fund. These measures also required exporters of natural resources to reinvest 100% of their export earnings in domestic banks, and increased Danantara's role in managing natural resource earnings and strategic investments.

While these measures aim to increase domestic foreign exchange reserves and alleviate pressure on the rupiah, some investors view them as an increased government role in the economy and a heightened policy uncertainty, which could impact investment decisions and foreign capital inflows in the future.

The new law adds questions about the independence of central banks (BI).

Dr. Tatsawan revealed that the Indonesian parliament passed a new financial system reform law on June 4th, expanding the role of Business Intelligence (BI) in supporting economic growth and employment, alongside its existing mission of maintaining price stability and financial system stability.

In addition, the legislation empowers Parliament to evaluate the performance of BI, the Office of Financial Supervision (OJK), and the Deposit Insurance Corporation (LPS), and adds a mechanism for the removal of the BI Board of Governors.

Although the government insists that the central bank's independence remains protected, these changes have led markets to question how the future role of BI will change, especially under the government's goal of achieving 8% economic growth by 2572.

Table 1: Indonesian Parliament passes financial system reform law announced on June 4, 2569.

Source: Reuters, compiled by Kasikorn Research Center.

BI uses every tool to stabilize the currency.

The latest interest rate hike is therefore just one measure by BI to stabilize its currency. BI employs an all-out defense approach, encompassing interest rate increases, raising yields on 6-12 month SRBI bonds, reducing hedging swap costs for foreign investors, opening a 3-12 month repo facility to enhance liquidity in the banking system and money markets, and intensifying intervention in the money market through spot intervention, DNDF, and offshore NDF.

Simultaneously, BI and the Ministry of Finance announced cooperation to increase returns on Indonesian financial assets and attract foreign capital back into the country, reflecting the authorities' joint use of both monetary and fiscal policies to maintain currency stability.

The effects of these measures are beginning to be reflected in the outstanding amount of SRBI instruments, which has been continuously increasing since February 2569. The latest 1-year SRBI yield is at 7.25%, higher than the 10-year government bond yield of 6.90%, reflecting the authorities' efforts to incentivize capital flows into rupiah-denominated assets and help reduce pressure on the currency.

"Kasikorn Research Center views the economic risk to Indonesia as lies more in the credibility of its policies than in its economic fundamentals. The key challenge for Indonesia in the coming period is not the economic fundamentals, but rather whether the government can maintain the credibility of its economic policy framework amidst market concerns about fiscal discipline, the independence of the Bank of Indonesia (BI), and the increasing role of the government in the economy. Meanwhile, volatility in global energy prices could accelerate concerns about confidence into pressure on the real economy if the authorities cannot restore confidence promptly."

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