Indonesia Divided: Should BI Rate Rise Again or Is It Time to Pause?
Jakarta, CNBC Indonesia - Bank Indonesia (BI) is expected to raise its benchmark interest rate again during the Board of Governors Meeting (RDG) on 21-22 July 2026. Pressure on the rupiah and the risk of rising inflation are the main considerations.
A CNBC Indonesia poll of 14 institutions and agencies shows the majority of respondents expect BI to raise its benchmark rate. Eight respondents project a 25 basis point (bps) increase in the BI Rate, from 5.75% to 6.00%. Meanwhile, six others expect the interest rate to be held.
If the majority projection materialises, this month’s increase would be BI’s fourth tightening of 2026. BI has previously raised interest rates cumulatively by 100 bps since May, reaching 5.75% in June.
Pressure on the rupiah is one of the main reasons the majority of economists forecast a rate hike. According to Refinitiv, the Garuda currency remains under pressure, closing 0.25% weaker at Rp17,930 per US dollar in trading on Monday (20/7/2026), or a 7.53% depreciation year-to-date (ytd). This position means the rupiah is still struggling to move away from the psychological level of Rp18,000 per US dollar.
The depreciation occurred as the US dollar remained quite strong in global markets amid renewed geopolitical tensions in the Middle East. The conflict has also driven up oil prices, adding to inflation risks and foreign exchange requirements. Under these conditions, a rate hike can be used to maintain the attractiveness of domestic financial assets. A competitive yield differential is expected to help stem foreign capital outflows and ease pressure on the rupiah.
“The BI Rate is expected to rise by 25 bps to 6.00% to ensure rupiah exchange rate stability amid reheating geopolitical risks in the Middle East,” CIMB Niaga Economist Mika Martumpal told CNBC Indonesia. In line with this, Valbury Asia Futures Chief Economist Fikri C. Permana also sees the need for further rate hikes. Besides rupiah volatility, BI needs to anticipate the possibility of further global monetary policy tightening. “The factors are the still considerable rupiah volatility, the growing expectation of a Fed rate hike this year, and the drive to increase the attractiveness of domestic portfolio assets,” Fikri said.
Beyond the rupiah, inflation developments reinforce the forecast for a rate hike. Indonesia’s inflation in June 2026 was recorded at 3.34% year-on-year (yoy), up from 3.08% in May. Inflation remains within BI’s target range of 2.5% plus-minus 1%, but its position is now approaching the upper limit of 3.5%. The weakening rupiah and rising global energy prices risk adding price pressure through imported goods, raw materials, transport, and production costs. A rate hike can help contain this pressure by stabilising the exchange rate and managing inflation expectations.
Bank Danamon Chief Economist Hosianna Evalita Situmorang shared a similar projection, expecting BI to raise rates by 25 bps again to keep inflation within the target while curbing further rupiah depreciation. However, some assess that BI needs to allow time for the cumulative 100 bps rate hikes since May to work through the financial markets and the economy.
Bank Maybank Indonesia Economist Juniman believes BI remains focused on safeguarding the rupiah and financial stability amid geopolitical tensions and global monetary tightening. Yet, he argues this pressure does not necessarily have to be met with a rate hike in July, especially as lending rates have begun to rise and manufacturing activity has weakened. Bank Permata Chief Economist Josua Pardede considers the BI Rate level of 5.75% to be sufficiently tight. Therefore, a decision to hold rates with firm communication is deemed more appropriate as long as rupiah movements can still be managed. “The baseline scenario for the July RDG is that BI holds the BI Rate at 5.75% with a vigilant policy message. An additional hike is only necessary if rupiah pressure and capital flows worsen materially,” Josua said. Rising inflation has also not yet breached BI’s target, giving the central bank room to wait and observe developments in the rupiah, capital flows, and energy prices before raising rates again.