Economist: BI rate rise to 5.25 percent to curb foreign capital outflows

Stability is the foundation for creating growth, said Eko Listiyanto, an economist at the Institute for Development of Economics and Finance (Indef), in Jakarta on Friday. He argued that the 50 basis point increase in the BI policy rate to 5.25% reflects a pro-stability policy direction, aimed at preventing foreign capital outflows amid geopolitical pressures that have pressured the rupiah in recent times. “Bank Indonesia is currently prioritising stability over economic growth. The move is important to maintain exchange rate stability in the face of global geopolitical pressure and potential ‘capital outflow’,” he said.

At the May 2026 Board of Governors Meeting (RDG), BI raised the policy rate by 50 bps from 4.75% to 5.25%. The BI Rate increase marks the first adjustment after the rate was kept at 4.75% since September 2025. Throughout 2025, BI had cut the policy rate five times, for a total reduction of 125 bps.

According to Eko, in remarks accompanying his appearance on the “What’’s on Economy” podcast, Indonesia’s current challenges include maintaining consistency in state spending to support growth, and restoring market confidence. He also noted that the direct delivery of the Macro Economy Framework (MEF)-PPKF and the 2027 State Budget (RAPBN 2027) by President Prabowo Subianto on Wednesday (20 May) demonstrates the government’s effort to foster optimism about a national economic rebound amid global and domestic challenges.

Nevertheless, he said the growth outlook pegged at around 5.8-6.5% remains overly optimistic given the current conditions. He did, however, welcome the rise in government revenues through April 2026, particularly from taxation receipts such as PPh 21, PPN, and PPnBM. He pointed out that the increase may also be influenced by the seasonal pattern of tax collection, which tends to rise in April.

The main challenge for the government going forward, he warned, is to keep state spending on a consistent path to sustain growth. If government spending moderates again in the coming semester, growth could likewise slow. He reminded that the effectiveness and quality of programme implementation are far more important than simply expanding the number of beneficiaries, adding: “The focus should be on ensuring that government programmes are optimal, not just broadening the beneficiaries, but also the quality of the programmes and governance.”