HSBC Forecasts BI to Cut Benchmark Interest Rate by 75 bps in 2026

JAKARTA - Managing Director, Chief India Economist and Macro Strategist, ASEAN Economist HSBC Global Pranjul Bhandari projects Bank Indonesia (BI) to cut its benchmark interest rate by 75 basis points (bps) throughout 2026.

He projected BI to cut its benchmark interest rate gradually, namely three times, in the first quarter, the second quarter, and the third quarter of 2026.

"Our estimate is that we can see three more interest rate cuts (BI), basically amounting to 75 basis points by 2026 as the year progresses," said Pranjul in a seminar entitled "Macro Economic Outlook and Investment Outlook Indonesia 2026" in Jakarta, quoted by Antara, Monday, January 12.

He said Indonesia currently still has a lot of room in monetary policy compared to fiscal policy, as an effort to stimulate economic growth, including through a reduction in the benchmark interest rate.

"Indonesia is one of the countries that has the opportunity to do more monetary easing, cutting interest rates at this time, rather than doing more fiscal easing at this time," said Pranjul.

Along with that, he assessed that the central bank needed to be careful in looking at the opportunity to carry out a haircut, one of the right moments was when the US dollar index (USD) experienced a weakening.

"Bank Indonesia must be very opportunistic and look for opportunities when the dollar index (US) is slightly weakening, so that the emerging market currency looks relatively strong, and take advantage of the opportunity to cut interest rates during that period of time," said Pranjul.

Regarding fiscal policy, he assessed that stimulating growth through fiscal policy is quite risky for Indonesia at this time, along with a fiscal deficit of 2.9 percent of Gross Domestic Product (GDP) in December 2025.

On the other hand, according to him, the widening fiscal deficit does not need to be feared in line with the opportunity for global economic recovery in 2026.

"In my opinion, the government actually does not need to worry about it (the deficit), and can still continue many expenditures, especially in the free meal scheme and social welfare scheme, just because I think tax revenue will be a little better this year," said Pranjul.

On this occasion, he emphasized that Indonesia still has a large space in terms of monetary policy, compared to the space in fiscal policy.

"But in general, if I combine the two, I think the room is much bigger in monetary easing than in current fiscal policy," said Pranjul.