BI Projects Global Inflation to Rise to 4.5% Due to Middle East Conflict

Bank Indonesia (BI) forecasts that global inflation will increase to 4.5 percent by 2026, a slight rise from previous projections, driven by escalating geopolitical uncertainty stemming from the Middle East conflict. The central bank also anticipates that global economic growth will remain subdued, hovering around 3 percent.

BI Governor Perry Warjiyo stated that the re-escalation of tensions between the U.S. and Iran in early July 2026 has disrupted traffic in the Strait of Hormuz. This disruption impacts international trade, supply chains, and has caused a rebound in oil and commodity prices, contributing to the upward revision of the global inflation forecast.

In response to rising inflationary pressures, global monetary policy is expected to tighten. BI projects that the U.S. Federal Funds Rate could be raised earlier than anticipated, possibly in the fourth quarter of 2026. Yields on U.S. Treasury bonds are also expected to increase further, influenced by a widening U.S. fiscal deficit.

The heightened global economic and financial uncertainty is prompting capital outflows from emerging markets towards U.S. financial markets and safe-haven assets. This trend is strengthening the U.S. dollar index (DXY) and its against emerging market currencies (ADXY). BI emphasizes the need for strengthened fiscal and monetary policy responses to bolster external resilience, maintain stability, and foster domestic economic growth.

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Suku bunga kebijakan moneter AS, Fed Funds Rate (FFR), diperkirakan naik lebih awal ke kuartal IV 2026. Imbal hasil (yield) US Treasury juga naik tinggi ke level 4,56 persen (tenor 10 tahun) dan 4,18 persen (tenor dua tahun) pada 20 Juli 2026 dan diperkirakan meningkat lagi didorong oleh melebarnya defisit fiskal AS.