Bank Indonesia (BI) has taken a decisive step to stabilize the national economy, raising its benchmark interest rate by 50 basis points to 5.25%. This significant adjustment was announced following the Board of Governors’ Meeting (RDG) held from May 19-20, 2026. The decision comes amidst a challenging period, as the Indonesian rupiah exchange rate has continued its weakening trend, breaching the 17,700 per US dollar mark.
Alongside the primary rate hike, BI also confirmed that the deposit facility rate would remain steady at 4.25%, with the lending facility rate held at 6%. These adjustments reflect the central bank’s strategic approach to navigate current economic pressures while maintaining liquidity in the financial system.
Speaking at a press conference on Wednesday, May 20, Bank Indonesia Governor Perry Warjiyo elucidated the rationale behind the policy shift. He stated, “This increase serves as a crucial follow-up measure to bolster the stabilization of the rupiah exchange rate against the backdrop of heightened global volatility, largely stemming from the conflict in the Middle East. It is also a preemptive step to ensure that inflation in both 2026 and 2027 remains within our targeted range.”
BI’s records indicate that on May 19, the rupiah stood at 17,700 per US dollar, marking a 2.2% depreciation since the end of April 2026. Despite this recent dip, the Central Bank maintains an optimistic outlook. It firmly believes the rupiah will stabilize and even demonstrate a strengthening trend, supported by Bank Indonesia’s unwavering commitment, attractive domestic yields, and the robust prospects of the Indonesian economy.
Governor Perry further elaborated on potential inflationary pressures. He highlighted the risk of imported inflation, which could intensify with the weakening rupiah. Moreover, the upward trajectory of global oil prices poses a threat, potentially leading to an increase in unsubsidized energy costs within the country.
Nevertheless, Bank Indonesia is resolute in its commitment to price stability. The central bank has affirmed its dedication to keeping inflation at a manageable 2.5% for both the current year and the upcoming year, underscoring its proactive stance in macroeconomic management.
This move by BI is not an isolated incident but rather aligns with the broader global trend among other central banks. Perry projected an increase in global inflation to 4.3% this year, while simultaneously anticipating a deceleration in world economic growth to 3%. This suggests a synchronized tightening of monetary policy across international markets.
“Global monetary policy responses are becoming increasingly stringent, with several central banks initiating rate hikes,” he noted, emphasizing the collective global effort to combat persistent inflationary pressures.
Looking ahead, BI anticipates that the US Federal Reserve’s interest rates are unlikely to decrease before the end of 2026. Governor Perry even suggested the potential for further rate increases in 2027, driven by the persistently high inflation rates observed in the United States, thereby impacting global financial conditions.
Summary
Bank Indonesia has raised its benchmark interest rate by 50 basis points to 5.25% to stabilize the rupiah, which recently depreciated to 17,700 per US dollar. This policy adjustment aims to mitigate global volatility, particularly from Middle East conflicts, and serve as a preemptive measure to keep inflation within target ranges for 2026 and 2027. While the deposit and lending facility rates remain unchanged, the central bank maintains an optimistic outlook for the currency’s recovery supported by strong domestic economic prospects.
The decision aligns with a global trend of tightening monetary policy to combat rising international inflation and slowing economic growth. Governor Perry Warjiyo highlighted risks such as imported inflation and rising oil prices, noting that US interest rates are unlikely to decrease soon. Despite these external pressures, Bank Indonesia remains committed to maintaining price stability and keeping inflation at a manageable 2.5% for the current and upcoming year.