Jakarta. Bank Indonesia should raise its benchmark interest rate by another 25 basis points at its July 21-22 policy meeting as Indonesia still needs billions of dollars in foreign capital inflows this year despite improving market sentiment, Trimegah Sekuritas Indonesia Chief Economist Fakhrul Fulvian said on Monday.

"Bank Indonesia should continue with another 25-basis-point rate hike at the July meeting. The case for doing so is not based solely on current market conditions, but also on the central bank's previously communicated pre-emptive policy approach. Credibility is built when policy actions follow through on that communication," Fakhrul said in a statement.

He said the recent rally in the Jakarta Composite Index (JCI) and the rupiah reflected improving investor confidence but did not eliminate the need for further monetary tightening.

"The market has improved significantly over the past week. However, Indonesia still needs substantial foreign capital inflows this year. That positive momentum must be reinforced through consistent and credible policies," he said.

Fakhrul attributed the stronger market sentiment in part to S&P Global Ratings' decision to reaffirm Indonesia's BBB sovereign credit rating with a stable outlook.

Still, external risks remain, particularly the need to maintain rupiah stability and sustain foreign capital inflows. Fakhrul estimated Indonesia would require an additional $11 billion in capital inflows by the end of the year to maintain balance-of-payments stability and support the currency.

He said investors would also be looking beyond the rate decision itself for clearer guidance on the central bank's policy path, particularly whether the July increase would mark, or come close to, the peak of the current tightening cycle.

"The market needs greater certainty on where the monetary tightening cycle will peak. It is not just the rate hike that matters, but also guidance that the tightening cycle is approaching its end," he said.

Without such guidance, higher policy rates would continue feeding through to the banking sector via rising deposit rates and funding costs, prolonging liquidity pressures, he said.

Fakhrul added that signaling the July increase as the final, or near-final, stage of the tightening cycle would help stabilize market expectations, accelerate liquidity normalization, and ease funding cost pressures on banks.

"Forward guidance is now just as important as the policy rate itself. When markets understand the future direction of Bank Indonesia's policy, adjustments across the money market, bond market, and banking sector can take place more quickly and efficiently," he said.

He added that the central bank's success would ultimately be measured not only by its ability to preserve rupiah stability but also by how effectively it manages the transition toward normalized liquidity without undermining the economic recovery.