Why LPEM FEB UI Recommends BI Maintain Interest Rate at 4.75 Percent

The Institute for Economic and Social Research at the Faculty of Economics and Business, University of Indonesia (LPEM FEB UI), recommends that Bank Indonesia maintain its benchmark interest rate, or BI rate, at 4.75 percent. The risk of high inflation amid surging energy prices needs to be considered. Bank Indonesia will announce the results of the Board of Governors Meeting (RDG) on Wednesday, 22 April 2026. “In this situation, we believe that Bank Indonesia needs to maintain the BI Rate at 4.75 percent, prioritising external stability while monitoring developments in inflation pressures,” stated the LPEM FEB UI research team in the Macroeconomic Analysis Series for the BI RDG, released on Tuesday, 21 April 2026. LPEM FEB UI notes that although domestic inflation is easing, global uncertainties are increasing its risks. External shocks due to conflicts in the Middle East are also beginning to impact capital outflows and rupiah weakening. From an external perspective, the escalation of the US-Iran conflict in recent months is increasingly influencing global policy considerations, particularly for central banks. These external shocks have also affected the policy direction of the US Federal Reserve (The Fed). At its March meeting, The Fed decided to maintain its benchmark interest rate at 3.50-3.75 percent due to concerns that the conflict could drive inflation higher. On the domestic side, between mid-March and mid-April, Indonesia’s financial markets recorded net capital outflows of around US$1.47 billion. The largest outflows were from the stock market, as investors tend to shift their portfolios away from emerging market stocks. Meanwhile, the rupiah weakened by 0.88 percent between mid-March and mid-April, from Rp16,975 per US dollar to Rp17,125 per US dollar. This movement caused Indonesia’s exchange rate to breach the psychological threshold of 17,000. According to LPEM FEB UI researchers, this situation poses a challenge for the central bank in balancing external stability with domestic inflation considerations. Premature monetary easing would be difficult to justify given the still-high inflation, while also risking further capital outflows and rupiah weakening. Conversely, LPEM FEB UI researchers assess that a cautious stance could lead to tighter financial conditions that burden domestic economic activity, although supporting growth is not Bank Indonesia’s primary mandate. Considering these factors, LPEM FEB UI researchers believe the central bank needs to maintain the BI Rate. “While remaining in a wait-and-see mode and prioritising exchange rate stability and external resilience, with the option to tighten policy if inflation pressures re-emerge or intensify.”