BI-Rate at 5.75 Percent, Economists Ask Bank Indonesia to Prioritize Caution
JAKARTA - A number of economists recommend Bank Indonesia (BI) to maintain the benchmark interest rate (BI-Rate) at the level of 5.75 percent at the July 2026 period Governor's Board Meeting (RDG). This cautious step is considered crucial after the central bank has tightened monetary policy cumulatively by 100 basis points (bps) since May 2026.
Interest rate detention is considered important to maintain the stability of the rupiah exchange rate while providing room for domestic economic growth from the consumption, investment, and export financing sectors.
Foreign Investor Entry and Positive Signals for Foreign Exchange Reserves
Macro Economist at Bank Tabungan Negara (BTN), Myrdal Gunarto, assessed that the condition of the domestic financial market is beginning to show improvement as global investors return to the stock market and Government Securities (SUN).
"Since global investors have returned to the stock market and our SUN market, the rupiah exchange rate is below Rp17,899 per US dollar, so we estimate that the BI-Rate still needs to remain at 5.75 percent," said Myrdal in Jakarta, Wednesday.
Myrdal also highlighted Indonesia's foreign exchange reserves last month as an indicator that the peak in domestic foreign exchange demand had been passed. Although global oil prices have risen again and triggered import burdens, consumer inflation in July 2026 is projected to remain safe below 3.5 percent.
Interest Rate Risk Analysis and External Stress
Separately, Head of Economics at PermataBank, Josua Pardede, emphasized that the retention of the reference interest rate was a form of policy transmission, not a signal that BI had run out of monetary space. BI needs to give time for the impact of the previous 100 bps increase to seep into the money, credit, and inflation markets.
Although June 2026 inflation rose to 3.34 percent (yoy) from 3.08 percent in May, Josua assessed that this surge was not strong enough to trigger further interest rate hikes. However, he reminded of a number of external challenges that still loom large:
US Interest Rates Tight & US Dollar Strengthening. Oil Price Sensitivity due to Geopolitics. Trade Balance Deficit: Indonesia recorded a deficit of 1.16 billion US dollars in May 2026 (first deficit in 6 years) due to high imports. Portfolio Flow Fluctuations: Total net inflows reached 5.65 billion US dollars (January-July 2026), but are still dominated by SRBI and bonds, while the stock market still records capital outflow."An increase in additional interest rates that is too fast can signal panic and actually suppress economic growth. The decision to maintain interest rates with clear communication is much healthier," said Josua.
FEB UI LPEM Projection: Interest Rate Effect on Domestic Credit
A similar view was expressed by the Macroeconomic and Financial Market Economist of LPEM FEB UI, Teuku Riefky. His party noted that foreign portfolio flows improved from June 15 to July 15, 2026 by 0.70 billion US dollars, followed by an increase in foreign exchange reserves to 145.6 billion US dollars in June 2026.
Although the rupiah was pressured to Rp18,060 per US dollar in mid-July due to the heating of the Middle East geopolitics, FEB UI's LPEM assessed that raising interest rates at this time would not have a significant impact on the rupiah, but would actually burden the real sector.
"Further monetary tightening is likely to provide only limited support for the rupiah, but impose greater costs on domestic credit, investment, and economic activity," Riefky said.