LPEM UI Recommends Bank Indonesia Hold Interest Rates at 5.5 Percent

The Institute for Economic and Social Research at the University of Indonesia's Faculty of Economics and Business (LPEM FEB UI) advises Bank Indonesia to keep its benchmark interest rate, the BI-Rate, steady at 5.5 percent. This recommendation is made as the central bank prepares to announce its monthly policy decision today, June 18, 2026.

LPEM's analysis highlights a recent increase in general inflation, which rose to 3.08 percent year-on-year in May 2026 from 2.42 percent in April. While still within Bank Indonesia's target range of 1.5 percent to 3.5 percent, LPEM researchers note that inflationary risks from food supply and energy price adjustments require continued monitoring.

Researchers also pointed to Bank Indonesia's recent off-schedule rate hikes, including a 25 basis point increase on June 9, following a 50 basis point hike in May. LPEM deemed these moves appropriate given the continued weakening of the rupiah, which reached a low of Rp 18,000 against the US dollar. This depreciation is attributed to growing investor concerns over domestic risks, including the formation of Danantara Sumberdaya Indonesia (DSI).

LPEM observed significant foreign capital outflows from both bond and stock markets, although the stock market saw gains driven by domestic investors. Bank Indonesia has been intervening in the foreign exchange market, as indicated by a US$11.6 billion decrease in foreign exchange reserves over the past five months. Considering the gradual policy tightening, ongoing interventions, and the need to assess the impact of recent measures, LPEM concludes that maintaining the policy rate at 5.5 percent is the prudent course of action.