Jakarta, IDN Times – Global economic uncertainty has escalated significantly following the re-escalation of the conflict between the United States and Iran in early July 2026. Bank Indonesia (BI) Governor Perry Warjiyo revealed that this geopolitical friction is triggering widespread disruptions in global supply chains and intensifying pressure on the global economy.
According to the central bank governor, the escalation of the US-Iran conflict has severely disrupted shipping traffic in the strategic Strait of Hormuz. Because this narrow waterway serves as a vital transit route for global energy shipments, the bottleneck has directly hindered international trade distribution. As a result, global oil prices and various commodity prices are experiencing renewed upward pressure, threatening to destabilize global market recovery.
“Global uncertainty has risen again following the re-escalation of the war’s intensity between the United States and Iran in early July 2026. Traffic in the Strait of Hormuz has been obstructed once more, disrupting production and international trade supply chains, while driving up the prices of oil and various global commodities,” Perry Warjiyo stated during a press conference detailing the results of the Bank Indonesia Board of Governors (RDG) meeting on Wednesday, July 22, 2026.
Global Economic Growth Projected at 3 Percent by Year-End
The persistent geopolitical friction is casting a long shadow over global economic prospects. Perry Warjiyo explained that the global economic growth rate for 2026 is projected to remain sluggish, hovering at just 3.0 percent by the end of the year. This weak growth trajectory is accompanied by a worrying rise in global inflation, which is expected to climb to approximately 4.5 percent.
The combination of slow growth and elevated inflation—often referred to as stagflationary pressure—is complicating the policy choices of central banks worldwide. To combat these rising inflationary pressures, major economies are adopting much tighter monetary policies.
“Global monetary policy is becoming increasingly tight as central banks respond to the growing pressure of inflation,” Perry elaborated. The shift toward higher interest rates globally is designed to cool down overheating prices, but it also risks further dampening international economic activity and reducing consumer demand.
Federal Reserve Expected to Accelerate Interest Rate Hikes
In response to these global inflationary pressures, Bank Indonesia projects that the United States central bank, the Federal Reserve, will take aggressive action. The Fed is anticipated to accelerate its monetary tightening cycle, potentially raising the benchmark Fed Funds Rate (FFR) as early as the fourth quarter of 2026. This accelerated timeline is a direct response to the persistent domestic and global inflation fueled by high commodity prices.
At the same time, the financial markets are already pricing in these expectations, as evidenced by rising US government bond yields. By July 20, 2026, the yield on the benchmark 10-year US Treasury note reached 4.56 percent, while the shorter-term 2-year US Treasury yield stood at 4.18 percent.
Perry Warjiyo pointed out that these bond yields still have room to climb even higher. The upward trajectory of US Treasury yields is driven not only by expectations of Federal Reserve rate hikes but also by the widening US fiscal deficit. As the US government issues more debt to cover its fiscal shortfall, the increased supply of bonds exerts upward pressure on yields, attracting capital away from other global markets.
Capital Flight: Outflows from Emerging Markets to Safe Havens
The combination of rising US interest rates and attractive Treasury yields is triggering a massive shift in global capital flows. Risk-averse investors are increasingly pulling their funds out of emerging markets and redirecting them toward the US financial market and other safe-haven assets.
This capital flight poses a significant challenge for developing nations. “This relocation of capital is also driving the appreciation of the US dollar against both advanced and emerging market currencies,” Perry explained. A stronger US dollar increases the cost of dollar-denominated debt and import costs for emerging economies, further exacerbating their domestic inflation challenges.
To counter these external pressures, Perry emphasized the critical need for robust policy responses within Indonesia. He stressed that synergy between fiscal and monetary policy must be continuously strengthened. Such coordination is vital to safeguard external resilience, maintain macroeconomic stability, and support sustainable domestic economic growth amidst a highly volatile global environment.
Bank Indonesia Maintains Benchmark Interest Rate at 5.75 Percent to Secure Stability
As part of its proactive strategy to navigate these global headwinds, Bank Indonesia has decided to hold its benchmark interest rate steady at 5.75 percent. This decision reflects a calculated effort to balance the twin goals of curbing domestic inflation and supporting economic growth. By keeping the policy rate at 5.75 percent, BI aims to ensure that the rupiah remains stable against the surging US dollar while keeping borrowing costs manageable for domestic businesses.
The domestic inflation picture remains relatively stable but requires careful monitoring. For instance, in June 2026, Lampung province recorded an inflation rate of 0.55 percent. Bank Indonesia has highlighted this regional inflation data as an important focal point, emphasizing the need to control supply-side pressures, particularly food and energy distribution, to prevent localized price hikes from spilling over into broader national inflation.
Despite the mounting external pressures from the US-Iran conflict and the subsequent supply chain disruptions, domestic financial regulators remain cautiously optimistic. The Chairman of the Board of Commissioners of the Financial Services Authority (OJK) has predicted that the global economy will manage to avoid a severe recession. While growth will undoubtedly slow down, the OJK chief believes that structural resilience in key economies, including Indonesia, will prevent a full-scale global economic collapse.
The synergy between Bank Indonesia, the Ministry of Finance, and the OJK will be paramount in the coming months. By aligning monetary policy, fiscal spending, and financial sector supervision, Indonesia seeks to build a defensive buffer against foreign capital outflows and global commodity price shocks. The focus remains on maintaining domestic demand, stabilizing the rupiah, and ensuring that the financial system remains liquid and resilient throughout the remainder of 2026.
