- Decision
- Raise
- Rate change
- 50 bps
- BI-rate
- 5.25%
Bank Indonesia’s Board of Governors lifted the BI-Rate by 50 bp to 5.25% and raised the Deposit and Lending Facility rates to 4.25% and 6.00% respectively, citing the need for a “pro-stability” stance to shield the rupiah from heightened Middle-East-related global turmoil and to pre-emptively secure 2026-27 inflation within the 2.5 ± 1% target band. After cutting the policy rate by a cumulative 100 bp between May and September 2025 and holding it at 4.75% through April 2026, the central bank has now reversed course with its first hike in over a year. Implementation will feature more aggressive FX interventions via on- and offshore NDF, spot and DNDF markets, higher SRBI yields to lure portfolio inflows, and continued liquidity support to keep primary money growth above 10%. April CPI eased to 2.42% y/y, core inflation to 2.44%, while GDP expanded 5.61% y/y in Q1 and is projected at 4.9–5.7% for 2026; bank credit grew 9.98% y/y in April with CAR at 25.09% and NPLs at 2.14%. On the external front the goods trade surplus narrowed to USD5.5 bn in Q1, but foreign portfolio inflows of USD5.5 bn have returned since April; reserves held steady at USD146.2 bn (5.8 months import cover) and the rupiah stood at IDR 17,700 per USD, 2.2% weaker month-to-date. Global risks centre on the Strait of Hormuz closure, surging oil prices, firmer US rates and sustained dollar strength. The central bank pledges to maintain tight-leaning monetary settings, reinforce FX market measures and coordinate closely with fiscal authorities to preserve stability and support growth.
Rate evolution
From June 2025 to September 2026, Bank Indonesia cut the BI-Rate by 75 basis points from 5.50% to 4.75% between July and September 2025, then held it at 4.75% in October 2025 and for the following six meetings before shifting into tightening, lifting the rate to 5.50% in May 2026 and 5.75% in June 2026. The mid-2025 cuts and the October 2025 pause reflected inflation forecasts for 2025 and 2026 that remained low within the 2.5±1% target, efforts to maintain rupiah stability in the face of still-high global uncertainty, and support for growth as domestic demand and credit remained soft. At the October meeting, Bank Indonesia said it would continue to assess the transmission of the easing already delivered, the growth and inflation outlook, and rupiah stability when considering room for further BI-Rate cuts, while strengthening macroprudential policy to push lending rates lower, raise liquidity and support credit growth.
Through late 2025 and early 2026, the emphasis shifted from room for further easing to external resilience as capital flows turned more volatile, the rupiah weakened and Bank Indonesia pressed banks to pass earlier easing through to lending rates. The policy turn then hardened as turmoil from the Middle East war, higher oil prices, a stronger dollar, high US Treasury yields and foreign exchange pressures prompted Bank Indonesia to prioritise stability, with April signalling readiness to tighten further if needed, May’s increase framed as pre-emptive, and June’s further 25-basis-point increase aimed at strengthening rupiah stabilisation and keeping inflation within the 2.5±1% target in 2026 and 2027. Bank Indonesia held the BI-Rate at 5.75% from July through September as global volatility persisted, with the September decision focused on rupiah stability amid strong external pressures, the inflation target and sustainable growth, while strengthening incentives to attract foreign capital inflows and accelerating money and foreign exchange market deepening.