Rancak Media – Bank Indonesia (BI) remains confident that Indonesia’s economic growth for the year will stay within the central bank’s projected range of 4.9 to 5.7 percent, despite a decision to raise the benchmark interest rate (BI-Rate) by 50 basis points (bps) in May.
“When determining the magnitude of the BI-Rate hike, we carefully balanced the need for inflation control with the necessity of maintaining a growth trajectory that remains unaffected,” stated BI Governor Perry Warjiyo.
During the press conference following the Board of Governors Meeting (RDG) in Jakarta on Wednesday (May 20), Perry emphasized that the monetary authority is maintaining close coordination with the government. This synergy, particularly regarding fiscal policy, is essential for preserving stability and fostering sustained economic growth.
“We are confident that a 50 bps adjustment allows us to contain inflation within our target while ensuring that the impact on economic growth remains within our 4.9 to 5.7 percent projection,” he added.
Bank Indonesia Raises BI-Rate to 5.25 Percent to Strengthen the Rupiah
Regarding inflation, Perry confirmed that the central bank is rigorously monitoring domestic trends, particularly how global oil prices and commodity fluctuations influence local prices and imported goods. He noted that rising global commodity costs threaten to trigger imported inflation, especially given Indonesia’s reliance on foreign raw materials. Furthermore, adjustments to non-subsidized energy prices are currently exerting additional inflationary pressure.
Consequently, the BI-Rate hike serves as a strategic move not only to stabilize the Rupiah but also to anchor inflation for 2026-2027 within the target range of 2.5 percent, plus or minus 1 percent (1.5 to 3.5 percent). To achieve this, the central bank is working in tandem with the Central and Regional Inflation Control Teams (TPIP/TPID) to mitigate the impact of volatile food prices and global price shocks.
“This 50 bps hike provides the necessary cushion to ensure that inflation through 2026-2027 remains firmly within the government-mandated target,” Perry explained.
Amidst ongoing global uncertainty, Bank Indonesia believes it is vital to maintain momentum in economic growth. Future prospects appear positive, supported by optimized government spending and a strategic mix of BI policies, including loosened macroprudential measures and initiatives that promote digital economy and financial inclusion.
Perry Urges Banks to Prioritize Efficiency Over Rapid Credit Interest Rate Hikes
The decision to raise the BI-Rate from 4.75 percent to 5.25 percent was finalized during the May 2026 Board of Governors Meeting. Correspondingly, the deposit facility rate was increased by 50 bps to 4.25 percent, while the lending facility rate saw a similar 50 bps rise, bringing it to 6 percent.
This adjustment marks the first rate hike since the benchmark was held at 4.75 percent in September 2025. Throughout 2025, Bank Indonesia had previously implemented five interest rate cuts, totaling a 125 bps reduction.
Summary
Bank Indonesia has raised its benchmark interest rate by 50 basis points to 5.25%, aiming to stabilize the Rupiah and anchor future inflation within the 1.5% to 3.5% target range for 2026-2027. Despite this adjustment, the central bank remains confident that Indonesia’s economic growth will stay within the projected range of 4.9% to 5.7%. Governor Perry Warjiyo emphasized that this policy move balances inflation control with the need to maintain a positive economic growth trajectory.
The rate hike addresses concerns regarding imported inflation driven by fluctuating global oil prices and commodity costs. Moving forward, Bank Indonesia plans to continue collaborating with the government to mitigate volatile food prices while promoting financial inclusion and a digital economy. The central bank has also urged domestic banks to prioritize efficiency rather than rapidly passing on the increased costs to credit interest rates.
