LPEM UI Assesses Bank Indonesia Should Maintain Policy Rate

The Institute for Economic and Social Research, Faculty of Economics and Business, University of Indonesia (LPEM FEB UI) has assessed that Bank Indonesia (BI) should maintain its benchmark policy rate, or BI-Rate, at 4.75 per cent. LPEM believes this approach could preserve rupiah stability and contain inflation.

LPEM UI researcher Jahen Fachrul Rezki explained that Indonesia recorded year-on-year inflation of 4.76 per cent in February 2026, exceeding Bank Indonesia’s target range of 1.5-3.5 per cent. This inflation was caused by the low-base effect from electricity tariff discounts in early 2025.

According to Jahen, inflation has risen moderately. “However, the US-Iran conflict has created import inflation risks through rising global energy prices, whilst also raising concerns over Indonesia’s ability to maintain its budget deficit ceiling of 3 per cent,” said Jahen in the Macroeconomic Analysis Series report, cited on Tuesday, 17 March 2026.

LPEM also highlighted a series of negative outlook revisions from rating agencies that have worsened market sentiment. As is known, Moody’s and Fitch Ratings have downgraded Indonesia’s debt outlook from stable to negative.

Jahen noted that foreign investors recorded net capital outflows of US$0.75 billion. Bond outflows reached US$0.77 billion, partially offset by equity inflows of US$0.3 billion as foreign investors selectively purchased energy sector stocks.

“In these circumstances, Bank Indonesia has limited room to cut interest rates, and we believe that Bank Indonesia should maintain the BI-Rate at 4.75 per cent to preserve rupiah stability and control inflation,” said Jahen.