Bank Indonesia (BI) has intensified its interventions in the foreign exchange market to support the Indonesian rupiah, which has experienced a sharp depreciation of 7.38% year-to-date, closing May at IDR 17,874 per US dollar [1]. As a result of these interventions, Indonesia's foreign exchange reserves declined to USD 144.9 billion in May, down from USD 146.2 billion in April and significantly lower than the December 2025 peak of USD 156.5 billion [1]. The primary reason for this contraction is BI's ongoing efforts to stabilize the rupiah amid persistent risk-off sentiment [1].
Despite the drawdown, UOB analysts Enrico Tanuwidjaja and Vincentius Ming Shen note that Indonesia's FX reserves remain fundamentally robust, with an import cover ratio of 5.6 months (or 5.5 months when including government external debt servicing), which is well above the international adequacy benchmark of 3.0 months [1]. BI has emphasized that these reserves will continue to underpin external resilience, potentially supported by capital inflows as the central bank adopts a more contractionary monetary stance [1].
Looking forward, FX reserves are expected to stay under pressure due to ongoing risk-off sentiment towards the rupiah [1]. BI is expanding its policy toolkit beyond direct FX intervention, including interest rate hikes, with expectations that the current tightening cycle will continue and the benchmark rate will rise to 6.00% by the end of 2026 [1]. Additionally, the Indonesian government is issuing more foreign currency-denominated sovereign bonds to bolster gross reserves, though this comes with the recognized cost of increasing future debt burdens [1].
These measures are deemed necessary by analysts to anchor the stability of the exchange rate and maintain market confidence in Indonesia's external position [1].
CONCLUSION
Bank Indonesia's ongoing interventions and tightening monetary policy are aimed at stabilizing the rupiah amid significant depreciation and declining FX reserves. While reserves remain above international adequacy benchmarks, continued pressure is expected, prompting further policy tightening and sovereign bond issuance. These actions are seen as essential to maintaining exchange rate stability and external resilience.