Bank Indonesia is expected to raise its benchmark BI-Rate by 25 basis points to 6.00% at its board of governors meeting on October 20 and 21, Warta Ekonomi reports. A probabilistic model put the likelihood of a hike at 63.11%, against 34.69% for holding the rate at 5.75% and only 2.20% for a cut.
The shift in expectations follows mounting pressure on the rupiah, which had weakened to around IDR18,043 per dollar by October 19. The yield on Indonesia's 10-year government bonds climbed to about 7.43% over the same period, and investor sentiment soured after an announcement by index provider MSCI.
Josua Pardede, chief economist at Permata Bank (IDX: BNLI), said the model's figures show the probable direction of policy rather than the size of any increase. He said that stress had begun spreading from equities into bonds and the currency. He added that the central bank should weigh pre-emptive action to stop larger foreign capital outflows, especially if domestic investors also start moving money into foreign currency assets.
Pardede warned that a rate rise would not guarantee an immediate recovery in the rupiah. He noted that the pressure stems less from interest rate differentials than from heightened risk perceptions of Indonesian financial markets. MSCI's concerns over shareholding transparency, possible trading manipulation and weak law enforcement are structural problems that monetary policy cannot fix, he said.
An overly aggressive hike could raise borrowing costs for the government and businesses, slow credit growth and weigh on consumption and investment, according to Pardede. Rates still matter for keeping rupiah assets attractive and anchoring inflation expectations, he said, with the yield on 10-year US Treasuries at about 5.14% narrowing the gap with Indonesian bonds.
He said the real question was whether the benefit of easing pressure on the rupiah outweighs the damage to growth.
Headline inflation reached 3.28% year on year in September, close to the 3.5% upper limit of the central bank's target range, while core inflation stood at 2.84%. Brent crude at around $110 per barrel and the weaker currency threaten to push up energy, imported material and transport costs.
The economy grew 5.29% in the second quarter of 2026. Pardede said a 25 basis point increase would be the more proportionate choice if pressure on the rupiah persists.