Rupiah Stable, BI Rate Predicted to Stay Put

Bank Indonesia (BI) is expected to hold its benchmark interest rate in the Board of Governors Meeting (RDG) held on Tuesday-Wednesday (18-19/8/2026). A more stable rupiah, easing inflation, and reduced pressure from the US dollar provide room for BI to maintain its monetary policy.

A CNBC Indonesia poll of 14 institutions and agencies showed all respondents unanimously expect the BI Rate to remain at 5.75%. None projected either a hike or a cut this month.

If the projection materialises, BI will have held rates for two consecutive meetings. The central bank previously also maintained the BI Rate at 5.75% at the July 2026 RDG.

The decision to hold would extend the pause after BI raised rates cumulatively by 100 basis points (bps) during May-June 2026, from 4.75% to 5.75%.

The hikes were made to ease pressure on the rupiah and keep inflation within target.

The rupiah’s movement is the main reason all economists expect BI not to raise rates again.

The Garuda currency has moved away from the psychological level of Rp18,000/US$ and is trading around Rp17,800/US$ ahead of the August RDG.

At the opening of trading on Tuesday (18/8/2026), the rupiah opened 0.17% weaker at Rp17,830/US.However, thatpositionisstillmuchstrongerthanwhentherupiahtradedaboveRp18, 000/US in July.

Bank Danamon economist Hosianna Evalita Situmorang assessed that rupiah stability provides room for BI to hold rates. The rupiah even showed a tendency to strengthen from around Rp18,000 to Rp17,800/US$.

The situation differs from ahead of the July RDG. At that time, the rupiah still faced significant pressure and continued to struggle to move away from the Rp18,000/US$ level.

The 100 bps rate increase has also made rupiah asset yields more attractive. BI does not need to rush to raise rates again as long as exchange rate movements and capital flows remain manageable.

The rupiah is also supported by the weakening US dollar in global markets. The US dollar index (DXY) was observed around 99.528.

The dollar’s weakness came after several US economic data points showed a slowdown. US retail sales in July fell 0.6%, contrary to market expectations of an increase.

US inflation has also begun to ease. Based on data from the US statistics agency, US inflation fell from 3.5% year-on-year in June to 3.4% in July 2026. Core inflation also eased from 2.6% to 2.5%.

These developments make the likelihood of a near-term rate hike by the US central bank, the Federal Reserve, increasingly small.

Based on CME FedWatch, the probability of a Fed rate hike in September 2026 fell to 35%, from 52.2% a week earlier. This indicates the market increasingly expects the Fed to hold rates in the 3.50%-3.75% range at next month’s meeting.

Bank Maybank Indonesia Chief Economist Juniman expects the BI Rate to remain at 5.75%. The Deposit Facility Rate and Lending Facility Rate are projected to stay at 4.75% and 6.50% respectively.

“We expect Bank Indonesia to maintain the BI Rate at 5.75% in August 2026. This is mainly driven by the rupiah being relatively stable and showing a strengthening tendency, in line with the weakening US dollar index due to easing inflation pressure in the United States,” Juniman told CNBC Indonesia.

According to Juniman, the decline in US inflation has shifted expectations of a Federal Funds Rate hike to a more distant period. External pressure on the rupiah is also not as great as in previous months.

Nevertheless, global risks have not fully subsided. War in the Middle East, rising oil prices, and movements in US bond yields could still trigger volatility in financial markets.

Therefore, BI is expected not to open room for rate cuts yet and to maintain a tight policy to preserve stability.

Domestic inflation developments have also increased room for BI to hold rates.

Based on data from Statistics Indonesia (BPS), Indonesia’s inflation in July 2026 was recorded at 2.88% year-on-year, down from 3.34% in June.

On a monthly basis, Indonesia even experienced deflation of 0.14% in July. Core inflation remained under control at 2.76% year-on-year.

Inflation remains within BI’s target of 2.5% plus-minus 1%, or in the range of 1.5%-3.5%.

The decline in inflation reduces the need for BI to raise rates again. The 5.75% rate is also deemed sufficient to anchor inflation expectations while supporting exchange rate stability.

However, BI still needs to anticipate rising global oil prices. As an oil-importing country, higher energy prices could increase dollar demand, pressure the rupiah, and raise transport and production costs.

The consensus to hold rates also gives BI time to assess the impact of the 100 bps rate hikes implemented during May-June.

Rate increases take time before fully affecting deposit rates, lending rates, consumption, investment, and business activity. Additional hikes that are too rapid risk further restraining credit growth and domestic demand.

Juniman assessed that BI currently still places rupiah and financial market stability as the main priority. Support for economic growth does not have to be done through lowering the BI Rate.

“To support domestic economic growth, BI is implementing macroprudential policy easing and increasing the effectiveness of the national payment system,” Juniman said.