BI Rate Prediction Economist Can Be 6.25 Percent at the End of 2026

JAKARTA - The economic team of PT Bank Danamon Indonesia Tbk projects the BI-Rate to reach 6.25 percent by the end of 2026 amid risks of pressure on the rupiah exchange rate, import inflation and tightening global financial conditions.

"We maintain the BI-Rate projection at the end of 2026 at 6.25 percent," said Bank Danamon Indonesia's Lead Economist Irman Faiz in the Indonesia Macro Glint study, quoted by Antara, Thursday, July 23.

Irman said that further interest rate hikes were still possible if pressure on the rupiah increased again, import inflation became more persistent, or global financial conditions tightened.

However, according to him, the decision of the Bank Indonesia (BI) to maintain the BI-Rate at 5.75 percent in July 2026 shows that the timing of the next monetary tightening increasingly depends on the development of data and external conditions.

BI in the Board of Governors Meeting on July 21-22, 2026 maintained the BI-Rate at 5.75 percent, the Deposit Facility interest rate at 4.75 percent, and the Lending Facility interest rate at 6.50 percent.

Irman considered the decision as a step to hold interest rates with a tendency to be tight or hawkish hold, not a change in direction towards a more relaxed policy.

According to him, the non-interest policy is still BI's main line of defense in maintaining rupiah stability.

Instead of immediately raising interest rates, BI chose to strengthen foreign exchange interventions, maintain the attractiveness of the yield of money market instruments, and reduce the cost of hedging for foreign investors.

The move is aimed at maintaining the inflow of foreign portfolio investment, deepening the domestic foreign exchange market, and maintaining the attractiveness of Indonesian financial assets amid increasing external pressures.

BI has increased the incentive for reducing the premium of hedging swap transactions for foreign portfolio investments from 10 percent to 12.5 percent.

The central bank also provided a new incentive of 15 percent for domestic non-deliverable forward (DNDF) hedging transactions.

In addition, BI provides incentives for local currency transactions (LCT), in the form of an additional 10 percent discount on hedging swap transactions and a 10 percent reduction in the DNDF premium.

Irman assessed that the reduction in the cost of hedging and the yield of the Bank Indonesia Rupiah Securities (SRBI) which remains attractive can help maintain foreign investors' demand for domestic financial assets.

However, he continued, the policy mix is expected to only dampen, not completely eliminate external pressures, especially if global risk sentiment worsens or geopolitical tensions increase.

BI also increased the maximum limit of the Macroprudential Liquidity Policy (KLM) incentive from 5.5 percent to 6 percent of banking third-party funds. The policy is effective starting September 1, 2026.

In this refinement, the allocation of KLM for the distribution of financing to priority sectors is adjusted from the highest 4.5 percent to 4 percent of third-party funds.

Meanwhile, BI introduced the Money Market Deepening KLM with the highest allocation of 2 percent of third-party funds for banks that maintain an optimal portion of ownership of SBN and non-repo SRBI.

According to Irman, the redesigned KLM framework is expected to improve liquidity distribution, deepen the money market, and maintain banking liquidity adequacy to support credit distribution.

He assessed that the mix of policies reflected BI's efforts to maintain rupiah stability by minimizing the impact of monetary tightening on economic growth.

Furthermore, Irman estimates that Indonesia's economy will grow by 5.30 percent in 2026, with year-end inflation of 3.50 percent and the rupiah exchange rate at the end of the year in the range of Rp17,830 per US dollar.