Bank Indonesia (BI) is likely to hold its benchmark interest rate at 5.50 percent on Wednesday after its surprise 25 basis-point rate cut in May, as fresh geopolitical tensions and rising oil prices limit room for near-term easing.
The Indonesian rupiah initially strengthened following BI’s May rate cut but has since weakened, with USD/IDR climbing back to 16,300 from lows around 16,200 after air strikes between Israel and Iran heightened risks to Middle Eastern oil exports. A break above 16300 should pave the way for a fresh rally to 16400.
While Indonesia’s annual inflation rate slowed more than expected to 1.60 percent in May, a further rise in oil prices could ignite inflation pressures and limit room for policy easing. BI projectsheadline inflation at 2.6 percent in 2025.
With the US Federal Reserve expected to hold rates this week, BI is likely to remain patient about easing further for now. BI might consider another rate cut in the third quarter as it agrees with the government on the need for lower rates to boost growth.
BI forecasts 2025 GDP growth between 4.6 percent and 5.4 percent, while the government has set a 5.2 percent growth target this year. President Prabowo Subianto has pledged to lift growth to 8 percent by the end of his term in 2029.
Indonesia’s government sees economic growth reaching at least 5.2 percent next year as it continues to focus on improving food production, energy security and people’s wellbeing, its finance minister told parliament.
Finance Minister Sri Mulyani Indrawati said economic growth in 2026 would be between 5.2 percent and 5.8 percent next year with the bottom end of the range the same as 2025’s growth target.
