BI Monitors Inflation Risks due to Rising World Oil Prices

Bank Indonesia building. (Karisa Aurelia Tukan/VOI)

JAKARTA - Bank Indonesia (BI) continues to monitor domestic inflation risks due to rising world oil prices which can increase transportation and production costs, including food, following the high tensions between Iran and the United States (US)-Israel.

Deputy Governor of BI Aida S. Budiman explained that the central bank will continue to monitor the latest indicators related to global conditions that can affect the domestic economy in three main channels, including related to commodity prices.

"Now we are starting to see how the price of oil, gold, and later it is also important to see the price of food. Because if the price of oil increases, of course there is (cost impact) transportation and others," said Aida in Jakarta, quoted by Antara, Tuesday, March 3.

He added that the central bank also continues to monitor the conditions of the financial market which can affect the exchange rate. This can also have an impact on the prices of imported goods and domestic price stability.

Then, BI observed a slowdown in global trade which could suppress economic growth, which then affected the dynamics of demand and inflation.

"BI's commitment remains to maintain stability. And we continue to be in the market to ensure that exchange rate stability is maintained, including inflation," said Aida.

For information, the Consumer Price Index (CPI) inflation in February 2026 was recorded to have increased by 4.76 percent on an annual basis (year on year/yoy).

This development is influenced by low base effect where last year the government implemented a policy of discount on electricity tariffs which encouraged deflation.

In February 2026, the government-regulated price group (administered prices/AP) recorded inflation of 12.66 percent, soaring when compared to February of the previous year which was deflation of minus 9.02 percent.

BI considers that so far the domestic economic outlook in 2026 remains maintained. Aida said that the momentum of economic growth, especially in the first quarter, needs to be optimally utilized given that during this period there are a number of National Religious Big Days (HBKN) which encourage increased public consumption.

In addition, based on projections, government consumption is also expected to increase. In this case, the government has expressed its commitment to realize various expenditures in the first quarter to ensure programs run well.

"If that happens, of course consumption from the private sector will increase and of course this will result in an increase in domestic demand and other productions," said Aida.

He reminded the importance of maintaining domestic demand, especially in the midst of a dynamic global condition and still shrouded in uncertainty.

Strengthening the source of growth from within the country is considered to be the main capital to maintain economic stability and momentum.

Overall, Aida said that Indonesia's economy remained stable. After growing by 5.11 percent in 2025, BI estimates that economic growth in 2026 will be in the range of 4.9-5.7 percent. Inflation is also projected to remain under control within the target of 2.5 plus minus 1 percent.

"Of course, about the path (the three main paths that BI is looking at), various impacts of the war, we will continue to monitor further," said Aida.

Externally, the current account deficit is expected to remain under control at around 0.9 percent to 0.1 percent of gross domestic product (GDP).

Meanwhile, armed with credit growth which at the end of 2025 was recorded at 9.69 percent and increased to 9.96 percent in January 2026, its performance throughout 2026 is projected to be able to achieve the target, namely in the range of 8-12 percent.