Relentless Pressure on Citizens' Wallets: Fuel, Food, and Now Interest Rates

Several economists have indicated that the increase in Bank Indonesia’s benchmark interest rate to 5.5% could potentially push lending rates higher, further depressing public purchasing power. This is because lending rates are linked to mortgages and people’s business credit, whereby higher lending rates cause the public to delay taking out such loans. M. Rizal Taufikurahman, head of the Center of Macroeconomics and Finance at the Institute for Development of Economics and Finance, stated that the BI Rate hike will almost certainly affect bank lending rates, though the transmission is not immediate. Banks typically adjust rates gradually, especially when funding costs rise and liquidity tightens. The impact on the public is increasingly heavy, particularly for debtors with mortgages, working capital loans, and vehicle loans. For micro business credit, the impact may be contained due to the interest subsidy scheme, but small enterprises can still face pressure from raw material costs, rupiah depreciation, and slowing demand. Regarding vehicle loans, higher lending rates could decelerate consumption, especially vehicle purchases. When instalments rise, banks become more selective, and purchasing power weakens, the public tends to postpone durable goods purchases. Rizal added that purchasing power is already declining due to rising energy prices, food prices, plastic costs, and rupiah depreciation. With higher lending rates, purchasing power declines further. He warned of potential economic slowdown if the government fails to anticipate the situation, with the economy potentially growing only 4.8% to 5.0% if pressures persist. Meanwhile, BTN chief economist Myrdal Gunarto noted that the BI Rate hike makes lending rates less attractive and has an indirect impact on borrowers. Subsidised credit, including subsidised mortgages and micro business credit, maintains fixed rates, but non-subsidised loans with floating rate schemes will adjust to market developments. He sees potential for further erosion of purchasing power as people tend to hold back spending due to price increases in fuel, food, and other items alongside rupiah depreciation. However, the rate hike represents a positive signal for communities whose livelihoods are commodity-based, as their incomes increase, presenting business opportunities in those regions. Myrdal predicted the Indonesian economy will still grow reasonably in 2026, with growth potential around 5.2%. He noted that exports remain solid and foreign investment continues to enter the Indonesian financial market, supporting optimism for growth around 5%.