BI Interest Rate Predicted to Rise to 5 Percent Due to Weak Rupiah

The think tank under PermataBank, the Permata Institute for Economic Research (PIER), states that Bank Indonesia (BI) has the opportunity to raise its benchmark interest rate, or BI rate, to as much as 5 percent if the rupiah continues to weaken. On Tuesday morning, 12 May 2026, the rupiah briefly breached a new record low above 17,500 per US dollar.

Faisal Rachman, Head of Macroeconomics and Market Research at Permata Bank, stated that BI’s benchmark interest rate has the potential to rise from the previous 4.75 percent. “In 2026, there is room for a BI rate increase. So we project a possible rise of 25 basis points,” he said during the PIER Economic Review Virtual Media Briefing on Tuesday, 12 May 2026.

Faisal stated that PIER has revised its previous projection. The interest rate increase to 5 percent is estimated to occur in the first semester of 2026. “So possibly in May or June this year,” he said.

The opportunity for a BI rate increase may arise due to the rupiah’s continuously weakening exchange rate. To date, the depreciation has reached above 4 percent. According to Faisal, historically, if the rupiah weakens by more than 3 percent, there is already a chance for the central bank to raise interest rates.

PIER also outlined three main factors influencing this decision: inflation that risks increasing. Next is the current account balance, whose deficit risks widening.

Furthermore, it is the movement of the US Federal Reserve’s benchmark interest rate or Fed Fund Rate. Although there are signals of cuts, the room for them is limited this year.

Previously, BI Governor Perry Warjiyo stated that the space to cut the benchmark interest rate or BI-Rate in the future would become increasingly closed. Perry mentioned that BI needs to recalibrate various policies towards stability.

“Although we maintain the BI-Rate at 4.75 percent, it seems that in the future, the room for reduction may become increasingly closed over time, and we must also respond to it for stability,” said Perry during a working meeting with Commission XI of the House of Representatives in Jakarta on Wednesday, 8 April 2026.