Bank Indonesia Predicted to Make Further Rate Cuts in 2026

Economic Context and Forecast

Bank Indonesia is expected to continue its monetary easing policy in 2026 with predictions suggesting two additional rate cuts totaling 50 basis points. This projection comes after BI has already cut the benchmark rate by 125 basis points since the beginning of the year, bringing the current BI rate to 4.75%.

Rationale Behind the Prediction

Dian Ayu Yustina, Head of Macroeconomics and Financial Market Research at Bank Mandiri, suggests that BI is likely to maintain a balanced approach between stimulating economic growth and maintaining currency stability. The analysis considers both domestic economic conditions and global factors, particularly the uncertainty surrounding the Fed Funds Rate (FFR) decisions.

Market Dynamics and Currency Pressures

Recent weeks have seen significant pressure on the Indonesian Rupiah due to global uncertainties and shifting expectations about the FFR cuts, with the probability of cuts rising to nearly 90%. This currency pressure is a key factor in BI's potential policy decisions for 2026.

Implications for Monetary Policy

The predicted rate cuts indicate a continued accommodative monetary stance by BI, aiming to support economic growth while managing inflation and currency stability. The balance between these factors will be crucial in shaping BI's policy decisions in the coming year.