- Bank Indonesia left the BI-Rate at 5.75% on Wednesday, standing pat after raising rates by 100 basis points in May and June.
- The decision to hold rates came even as Governor Perry Warjiyo sounded the alarm regarding the renewed conflict in the Middle East, saying global inflation could accelerate and the US Federal Reserve could hike its key rate sooner.
- Bank Indonesia is continuing to strengthen rupiah stabilisation measures, intervening in both offshore and onshore markets and offering new incentives to attract inflows.
- Warjiyo stated that Bank Indonesia faced two options: either raise the BI rate or not raise it but increase incentives to encourage foreign portfolio inflows.
- The central bank also kept the Deposit Facility rate at 4.75% and the Lending Facility rate at 6.5%.
- Bank Indonesia will expand incentive schemes and other policy measures to boost foreign portfolio investment, strengthen the rupiah, and ease liquidity fragmentation in the banking system.
Bank Indonesia (BI) kept its benchmark interest rate steady at 5.75% on Wednesday, following a series of rate hikes earlier this year. Governor Perry Warjiyo emphasized the need for stability amid rising global inflation and geopolitical tensions, particularly in the Middle East.12346
The central bank's decision reflects a shift from aggressive monetary tightening to a strategy focused on attracting foreign portfolio inflows and stabilizing the rupiah. Warjiyo stated, “These incentives are more effective at attracting foreign inflows and managing the exchange rate, without causing domestic interest rates to rise.”
In addition to maintaining the benchmark rate, BI also kept the Deposit Facility rate at 4.75% and the Lending Facility rate at 6.5%. The central bank aims to keep inflation within a target range of 1.5% to 3.5% for this year and in 2027, despite the price gauge accelerating to 3.34% in June.5
The decision was widely anticipated by economists, with many noting that the central bank's approach should support domestic demand amid slowing consumption. Credit growth stood at 12.67% in June, surpassing the full-year target of 8% to 12%.
Despite net foreign portfolio inflows of $700 million between June 15 and July 15, the rupiah weakened by 2.09% against the US dollar. Economists like Teuku Riefky from the University of Indonesia's Institute for Economic and Social Research expect inflation to remain within BI's target, but caution that further rate hikes may not significantly support the rupiah.
Warjiyo concluded, “The BI-Rate decision and these accompanying policy measures form an integrated policy mix aimed at further strengthening rupiah stability amid persistent global uncertainty.”
“In June, inflation hit 3.34% near BI’s ceiling and credit growth surged to 12.67%, while the central bank maintained its 4.9%-5.7% growth forecast for 2026. Despite $700 million in foreign portfolio inflows from mid-June to mid-July, the rupiah weakened 2.09% against the dollar, and economists called for continued hawkishness.”
