Permata Institute for Economic Research (PIER), an economic research institution under Permata Bank, projects Bank Indonesia (BI) has the opportunity to raise the benchmark interest rate or BI-Rate to 5 percent in the first half of 2026.
"We have revised that in 2026 there is a possibility of an increase in the BI Rate. So we project that there will be a 25 percent (base) point increase in the first half," said Head of Macroeconomics and Market Research Permata Bank Faisal Rachman quoted by Antara.
For information, currently the BI-Rate is maintained at the level of 4.75 percent.
According to Faisal, the opportunity for an increase in the benchmark interest rate arises in tandem with the weakening of the rupiah exchange rate which has depreciated by more than 4 percent. Based on the latest data at 13.52 WIB, the rupiah exchange rate reached Rp17,524 per US dollar.
Historically, BI tends to start opening the room for interest rate hikes when the rupiah weakening has exceeded 3 percent.
"Especially if we look at SRBI, the rate has increased quite a bit. So we need to anticipate this," he explained.
PIER also identified three main factors that could affect the BI's future decisions.
First, the risk of domestic inflation rising. Second, the potential for a widening current account balance. Third, the direction of the policy of the US central bank or The Fed.
Even though the results of the Federal Open Market Committee (FOMC) meeting showed a signal of interest rate cuts, the market still sees the room for a Fed interest rate cut this year as very limited.
"If from a global perspective, which is located on the side of the advance rate, in fact the market will still tend to see that the effect will not maintain the interest rate until the end of this year, and only opens the possibility of cutting it at the end of next year," said Faisal.
This condition makes external pressure on the exchange rate and the domestic financial market still needs to be watched in the near future.
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