Economists Predict Bank Indonesia Will Raise Interest Rates Amid Rupiah Weakness

JAKARTA, KOMPAS.com - Several economists are starting to see an increasing likelihood of Bank Indonesia (BI) raising its benchmark interest rate. This possibility has emerged as the Rupiah continues to weaken and has reached new lows in recent weeks. Josua Pardede, Chief Economist at Bank Permata, believes that the room for further cuts in the BI rate is now increasingly limited. Bank Indonesia (BI) is now more focused on maintaining Rupiah stability. BI is also not hesitant to use policy instruments other than the benchmark interest rate to maintain the exchange rate. These instruments include financial market intervention, Domestic Non-Deliverable Forward (DNDF), Non-Deliverable Forward (NDF), and monetary operations. “The room for cutting interest rates is becoming increasingly limited. Because the main focus of monetary policy now is to maintain exchange rate stability,” said Josua during a PIER Economic Review media briefing on Tuesday (May 12, 2026). Bank Permata has revised its projection due to increasing external risks. The Rupiah’s weakening, which has now exceeded 4 percent, is also a major factor. “Because historically, if we look at it, BI usually has the potential to raise interest rates when the Rupiah has weakened by 3 percent or more,” he said. Faisal estimates that the increase in the BI rate will occur in May or June 2026. This means that BI has the potential to raise its benchmark interest rate in the near future. The BI rate has been maintained at 4.75 percent since September 2025. The weakening of the Rupiah is not the only signal. The increase in the yield of Bank Indonesia Rupiah Securities (SRBI) is also considered to indicate that the central bank is starting to tighten policy gradually. “So we really need to anticipate this. But indeed, the risks exist and we see that the possibility of BI raising its benchmark interest rate to 5 percent is open at this time,” said Faisal. Radhika mentioned two prerequisites that will encourage BI to switch to monetary tightening. First, the increasingly sharp depreciation pressure on the Rupiah. Second, the increase in subsidized fuel prices in the country. The increase in subsidized fuel prices risks triggering direct and indirect inflationary pressures, exceeding BI’s target.