Indonesia: Hawkish hold extends through 2026 – UOB

UOB economists Enrico Tanuwidjaja and Vincentius Ming Shen note that Bank Indonesia (BI) kept its policy rate at 4.75% in March while shifting to a more hawkish stance. They no longer expects any rate cuts in 2026 and now forecasts the BI rate to stay at 4.75% through year-end, with risks skewed toward a potential hike.

BI shifts stance to prolonged hold

"From the Mar MPC, we materially change our BI rate forecast and no longer expect any rate cuts this year. In fact, we are contemplating that the next rate move would be a rate hike."

"For now, we are changing our forecast for the BI rate to remain at the current level of 4.75% till the end of 2026."

"One important material shift in Mar MPC was that BI highlighted the Middle East conflict has lowered expectations for global rate cuts, suggesting that current interest rate levels may persist longer. Moreover, BI removed prior references to potential rate cuts, signaling a more cautious stance in adapting to global dynamics."

"Looking ahead, BI is expected to maintain a hawkish hold stance while remaining data-dependent. The Middle East conflict is seen as the dominant factor weakening the rupiah and adding inflationary pressures."

"BI has outlined three scenarios (base, moderate, severe) for oil prices and conflict outcomes. Additional inflation risks stem from potential crop failures due to warmer weather."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)