Bank Indonesia (BI) has officially raised its benchmark interest rate by 50 basis points to 5.25%. The decision, announced following the Board of Governors Meeting held on May 19-20, 2026, comes as the Indonesian rupiah continues to face significant downward pressure, sliding to the 17,700 level against the US dollar.
While the benchmark rate was increased, the central bank decided to maintain the deposit facility rate at 4.25% and the lending facility rate at 6%.
Bank Indonesia Governor Perry Warjiyo explained that the hike is a strategic move to stabilize the rupiah amid global market volatility, particularly fueled by ongoing tensions in the Middle East. “This increase is a preemptive step to ensure inflation for 2026 and 2027 remains within our target range, while simultaneously reinforcing the stability of the rupiah,” Warjiyo stated during a press conference on Wednesday, May 20.
As of May 19, the rupiah had weakened by 2.2% compared to the end of April 2026. Despite this trend, the central bank remains optimistic about the currency’s future. BI believes the rupiah will stabilize and eventually strengthen, supported by the bank’s firm commitment, attractive yields, and the robust outlook of the Indonesian economy.
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Governor Warjiyo highlighted concerns regarding imported inflation—a risk that arises as the currency weakens. Furthermore, the rising cost of global oil may trigger an increase in non-subsidized energy prices domestically. Nevertheless, Bank Indonesia remains steadfast in its target to maintain inflation at 2.5% throughout this year and into the next.
The decision to tighten monetary policy aligns with broader global trends. BI projects global inflation will climb to 4.3% this year, while global economic growth is expected to soften to 3%. “The global monetary policy response is becoming increasingly restrictive, with a growing number of central banks opting to raise their benchmark interest rates,” Warjiyo noted.
Looking ahead, Bank Indonesia does not anticipate a rate cut from the US Federal Reserve for the remainder of 2026. In fact, due to persistent high inflation in the United States, the possibility of further rate hikes in 2027 remains a significant concern for the global financial landscape.
Summary
Bank Indonesia has raised its benchmark interest rate by 50 basis points to 5.25% as a strategic move to stabilize the rupiah, which has weakened to 17,700 against the US dollar. Despite this hike, the central bank has kept the deposit facility rate at 4.25% and the lending facility rate at 6%.
This preventive measure was taken to keep inflation within its target range amid global economic uncertainty and the risks of imported inflation. Bank Indonesia remains optimistic that the rupiah will strengthen, supported by the central bank’s commitment and the country’s strong economic fundamentals.