BI: Rising Global Uncertainty Demands Strengthened Policy Response

Bank Indonesia (BI) views the renewed increase in global economic and financial market uncertainty as necessitating a strengthened response and synergy between fiscal and monetary policies to bolster external resilience, maintain stability, and drive domestic economic growth. BI Governor Perry Warjiyo explained that global uncertainty has risen again following the re-escalation of conflict between the United States (US) and Iran in early July 2026. “Traffic in the Strait of Hormuz has been disrupted again, hampering production and international trade supply chains, and causing world oil and commodity prices to reverse course and rise,” Perry stated during an online press conference following the BI Board of Governors Meeting in Jakarta on Wednesday. The outlook for global economic growth in 2026 is expected to remain weak at 3 per cent, with global inflation rising to around 4.5 per cent. Global monetary policy is becoming tighter in response to the increasing inflationary pressures. The US monetary policy rate, or Fed Funds Rate, is expected to rise earlier, in the fourth quarter of 2026. US Treasury yields also climbed sharply to 4.56 per cent for the 10-year tenor and 4.18 per cent for the 2-year tenor on 20 July 2026, and are forecast to increase further, driven by the widening US fiscal deficit. In global financial markets, capital outflows from emerging markets are shifting to US financial markets and safe-haven assets, thereby strengthening the US dollar against both advanced economy currencies (DXY) and emerging market currencies (ADXY). Meanwhile, Indonesia’s economic growth remains well maintained, supported by domestic demand. Developments in the second quarter of 2026 indicate that government consumption grew strongly, underpinned by the continued realisation of priority programmes and accelerated government spending, particularly the disbursement of the 13th salary for civil servants and the distribution of social assistance to Beneficiary Families. Household consumption is being sustained by various government stimuli, such as food aid, transport fare discounts, and the national meal and vocational training programme. Investment is primarily supported by building investment related to the realisation of the National Priority Work Programme, although private investment still needs to be further boosted. From the external side, export performance must continue to be strengthened to capitalise on high world commodity prices amid a slowing global economic outlook. Sectorally, growth in the processing industry, construction, transportation, and warehousing sectors remains solid, in line with the realisation of government programmes. Going forward, the implementation of various government priority programmes to drive sources of economic growth from domestic demand and strengthen the economic growth structure will continue to be optimised. In line with this, BI is also continuing to strengthen its policy mix through monetary, macroprudential, and payment system policies that are closely synergised with government policies to maintain stability while supporting sustainable economic growth. “Bank Indonesia estimates that Indonesia’s economic growth in 2026 will remain solid, in the range of 4.9 to 5.7 per cent,” Perry said.