External Pressures High, BI-Rate Projected to Hold at March Board Meeting

Jakarta — Multiple economists have reached consensus that Bank Indonesia’s benchmark interest rate is expected to remain at 4.75 per cent at the March 2026 Board of Governors meeting, whose results were announced Tuesday afternoon, amid continuing strong external pressures driving rupiah weakness.

“External pressures remain quite strong and the appeal of rupiah assets needs to be maintained,” said BCA Chief Economist David Sumual when contacted in Jakarta on Tuesday.

He added that pressure on the rupiah exchange rate still depends on how quickly the conflict between the United States and Iran ends and Indonesia’s sovereign rating outlook going forward.

Permata Bank Department Head of Macroeconomic and Financial Market Research Faisal Rachman explained separately that prolonged conflict would impact rising global oil prices and global inflation.

Markets have also revised prospects for The Fed’s interest rate cuts, which are now estimated to occur only once this year, possibly in December 2026. This means, Faisal added, that room for BI-Rate cuts will also become increasingly limited and in the short term the BI-Rate is likely to be used to maintain stability.

“If a Fed rate cut occurs once, the possibility of a BI-Rate cut would also occur once this year,” he said.

However, if geopolitical tensions increase and persist longer, and oil prices remain above 100 US dollars per barrel, there is a possibility that no interest rate cuts will occur, or even shift to a more hawkish stance of raising rates.

Meanwhile, Indef Macroeconomic and Finance Centre Head M Rizal Taufikurahman believed opportunities for rupiah strengthening still exist, but in the short term remain overshadowed by strong external factors.

According to him, rupiah strengthening and renewed inflows of foreign capital will be more solid if global stability improves and domestic fundamentals, particularly fiscal position, inflation, and policy credibility, remain intact.

LPEM FEB UI Macroeconomist and Financial Market Teuku Riefky noted that as of 12 March 2026, Indonesia recorded total capital outflows of 0.63 billion US dollars in the last 30 days (compared to 13 February 2026), and outflows of 0.75 billion US dollars since the US-Iran conflict began.

Alongside this, government bond yields have risen on both short and long tenors, where the 1-year tenor increased 83 basis points from 4.82 per cent on 18 February 2026 to 5.65 per cent on 13 March 2026, whilst the 10-year tenor rose 36 basis points from 6.39 per cent to 6.75 per cent in the same period.

“Yield increases on both tenors simultaneously indicate that markets are factoring in increased uncertainty regarding Indonesia’s economic prospects in the short term, driven by capital outflows, exchange rate pressure, and the potential deterioration of fiscal conditions from oil price shocks,” Riefky explained.

As of 13 March 2026, the rupiah had weakened near its lowest level in recent months, depreciating 1.6 per cent year to date (ytd) and approximately 1 per cent since the US-Iran conflict began.

On an annual basis, the rupiah has lost about 3.64 per cent (year on year/yoy) of its value against the US dollar.

Besides Indonesia, the US-Iran conflict has also pressured many emerging market currencies. However, Riefky noted, not all emerging market currencies have experienced depreciation.

Argentina, Malaysia, Brazil, and China recorded appreciation ytd against the US dollar. Meanwhile, Indonesia along with the Philippines, Russia, South Africa, Turkey, India, and Thailand recorded depreciation ytd.

“Regardless, rupiah depreciation remains moderate compared to several other countries, reflecting Bank Indonesia’s active efforts to stabilise the exchange rate,” Riefky said.

If Bank Indonesia were to cut its benchmark interest rate at the March Board meeting, Riefky cautioned that the resulting narrowing of the interest rate differential could add pressure to the rupiah’s already weakened position.

Additionally, the US-Iran conflict raises prospects of inflation pressure from oil prices and currency depreciation, thus limiting room for interest rate cuts that could potentially worsen inflation risks.