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🇮🇩 Indonesia /Economy & Trade

BI Predicted to Raise Interest Rates Up to 6.5 Percent

From Tempo · () Indonesian

Translated from Indonesian, summarized and contextualized by DistantNews.

At a glance

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  • An economist predicts Bank Indonesia will raise its benchmark interest rate to 6.5% this year through three 25-basis-point hikes.
  • These increases are intended to maintain rupiah stability amid global economic uncertainty and potential U.S. Federal Reserve rate hikes.
  • Despite potential rate increases, economic growth is not expected to be significantly hindered due to adequate liquidity in the banking sector.

Bank Indonesia (BI) is projected to increase its benchmark interest rate, the BI-Rate, to 6.5% by the end of this year, according to Enrico Tanuwidjaja, an economist at United Overseas Bank Limited (UOB). This forecast involves three separate 25-basis-point hikes, moving from the current 5.75%.

So UOB's prediction is 3 times a 25 basis point increase to 6.5 percent, currently 5.75 percent.

— Enrico TanuwidjajaASEAN Economist at United Overseas Bank Limited (UOB), explaining his forecast for Bank Indonesia's benchmark interest rate.

Tanuwidjaja anticipates these rate adjustments will occur in July, August, and the fourth quarter of 2026. The primary driver for these hikes is to safeguard the stability of the Indonesian rupiah in the face of global economic volatility and the possibility of further interest rate increases by the U.S. Federal Reserve. He noted that foreign capital has begun to re-enter Indonesia's bond market, with year-to-date inflows reaching $470 million as of July 8, 2026, although the stock market still experiences outflows.

Despite the anticipated rate hikes, Tanuwidjaja believes economic growth will remain resilient. He pointed to the current ample liquidity within the banking sector, evidenced by the Loan to Deposit Ratio (LDR) standing around 25%. This suggests that banks have sufficient funds to lend, and he encouraged them to channel these funds into sectors with high multiplier effects, such as manufacturing, food and beverages, accommodation, and particularly Micro, Small, and Medium Enterprises (MSMEs).

We actually need fund flows in manufacturing, food and beverages, accommodation, that is still needed. Especially MSMEs.

— Enrico TanuwidjajaEconomist at UOB, advising on where banking liquidity should be directed.

This projection aligns with BI's recent actions. In May-June 2026, BI raised its benchmark rate three times, reaching 5.75%. Governor Perry Warjiyo stated that the June increase was a strategic move to further strengthen the rupiah's stability amidst global uncertainty. BI also adjusted its deposit facility rate to 4.75% and its lending facility rate to 6.5%.

the increase in the BI-Rate is a follow-up step to further strengthen the stability of the rupiah exchange rate amidst high global uncertainty.

— Perry WarjiyoGovernor of Bank Indonesia, explaining the rationale behind the recent rate hike.
DistantNews Editorial

Originally published by Tempo in Indonesian. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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