BI Governor: Room for BI Rate Cuts Becoming Increasingly Closed Over Time

Bank Indonesia (BI) is tightening the room for reductions in the benchmark interest rate (BI rate) in line with increasing global pressures on domestic economic and financial stability. For information, since the BI Board of Governors Meeting (RDG) in March 2026, BI has no longer been considering further room for BI rate reductions. The BI rate has been at 4.75 percent since September 2025. BI Governor Perry Warjiyo stated that opportunities for BI rate reductions going forward are becoming increasingly limited. This policy is taken in response to the deteriorating global conditions triggered by geopolitical tensions between Iran and the United States (US) and Israel. “It appears that going forward, the room for reductions will likely become increasingly closed over time, and we must also respond to it to maintain stability,” he said during a working meeting with Commission XI of the House of Representatives (DPR RI) at the Parliament Building, Jakarta, on Wednesday (8/4/2026). Policy uncertainty in the US is exacerbated by the conflict between Iran and Israel, which has triggered the closure of the Strait of Hormuz, thereby disrupting international trade distribution. This escalation of the conflict has impacted the rise in global commodity prices, particularly oil and gold, and increased financial market uncertainty. Perry explained that the rise in oil prices, which once reached $122.95 per barrel, is seen as potentially adding pressure to domestic fiscal and inflation. The escalation of the conflict has also impacted the rise in yields on US government bonds, both for 2-year and 10-year tenors, which have reversed from the previous downward trend. According to him, this rise in US government bond yields is triggered by the increasing US fiscal deficit due to budget allocations for war. “It is evident that this will impact Indonesia. The oil price alone will affect fiscal and other aspects. Then, the rise in US government bond prices will impact portfolio inflows and other effects,” he revealed.