Jakarta. Bank Indonesia said on Friday that foreign investors have responded positively to its recent interest-rate increase, with capital beginning to flow back into domestic financial assets following the central bank's latest monetary tightening measures.

The central bank raised its benchmark BI Rate by 25 basis points to 5.50% earlier this week as part of efforts to support the rupiah and maintain financial-market stability.

Bank Indonesia Communications Department Head Ramdan Denny Prakoso said the combination of higher interest rates and increased yields on Bank Indonesia Rupiah Securities (SRBI) and government bonds (SBN) had improved the attractiveness of Indonesian financial assets for global investors.

“Following the increase in the BI Rate to 5.50%, as well as higher yields on SRBI and government bonds, foreign investors have responded positively to the strengthened policy mix,” Denny said in a statement.

He did not disclose the latest value of capital inflows.

According to Denny, foreign investor participation increased in SRBI instruments following the central bank's June 10 auction. Foreign investors have also begun returning to the government bond market, particularly in short- and medium-term maturities.

The renewed inflows suggest that Bank Indonesia's efforts to enhance returns on domestic financial instruments are beginning to attract overseas investors back to the market after a period of capital outflows and pressure on the rupiah.

In line with the improvement in investor sentiment, the rupiah has continued to strengthen against the US dollar and has moved back below the Rp 18,000-per-dollar level.

“Bank Indonesia will continue to closely monitor developments in global and domestic financial markets and maintain the attractiveness of domestic financial instruments to support foreign capital inflows,” Denny said.