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🇮🇩 Indonesia /Economy & Trade

Indonesia's Central Bank May Raise Rates Twice More Amid Global Uncertainty

From Republika · () Indonesian

Translated from Indonesian, summarized and contextualized by DistantNews.

At a glance

News Sources not specified Context piece
  • Bank Danamon economist Irman Faiz predicts Bank Indonesia may raise its benchmark rate twice more by year-end.
  • Rate hikes are considered necessary if global uncertainty continues to pressure the rupiah.
  • Faiz also noted that fiscal discipline and government spending are crucial for maintaining investor confidence and economic growth.

Bank Indonesia (BI) may still have room to increase its benchmark BI Rate up to two times, each by 25 basis points, before the end of 2026. Economist Irman Faiz from Bank Danamon suggests this move would be necessary if global uncertainty persists and continues to pressure the rupiah's exchange rate.

Our estimate is that there is still room for two interest rate increases, each of 25 basis points, until the end of the year. However, if global conditions improve, BI may not need to utilize all of that room.

— Irman FaizEconomist at Bank Danamon discussing potential future interest rate hikes by Bank Indonesia.

Faiz stated that the potential for BI Rate hikes remains open but is highly dependent on global developments, particularly geopolitical tensions and financial market volatility. He noted that if global conditions improve, BI might not need to utilize the full extent of this potential increase. Currently, the rupiah's movement is largely influenced by external factors like geopolitical conflicts and global oil prices. However, Faiz views the pressure on the rupiah as relatively contained, as oil price surges have not reached market fears.

He added that monetary policy alone is insufficient to maintain the rupiah's stability. The government must also uphold fiscal discipline to preserve investor confidence. Faiz pointed to Standard & Poor's (S&P) Global Ratings reaffirming Indonesia's debt rating at BBB with a stable outlook as a positive signal, indicating the country's strong economic fundamentals despite ongoing policy transitions.

If the escalation of the conflict is not too large, the impact on the rupiah will also be relatively limited. This could be positive sentiment for the exchange rate going forward.

— Irman FaizIrman Faiz commenting on the limited impact of geopolitical conflicts on the Indonesian rupiah.

Furthermore, Faiz anticipates that Indonesia's economic growth in the third quarter of 2026 could be better than the previous quarter. This optimism is fueled by the potential for increased government spending in the second half of the year, which is expected to stimulate public consumption and investment. However, he cautioned that the government must ensure state revenues, especially taxes, meet targets to support economic growth initiatives effectively.

Government spending can be a driver of growth. But state revenues must also meet targets so that the stimulus prepared can run optimally.

— Irman FaizIrman Faiz emphasizing the importance of both government spending and revenue for economic growth.
DistantNews Editorial

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

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