Indonesia: BI substitutes hikes with targeted FX measures: We push back our forecast for the next 25bp hike to September

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Indonesia: BI substitutes hikes with targeted FX measures: We push back our forecast for the next 25bp hike to September

pressures are likely to persist

The BI’s tone on the FX outlook remains cautious. The BI acknowledged the risk of a sooner-

than-expected hike by the Fed and that US treasury yields could continue to rise. As a result,

the BI indicated that these developments require a stronger policy response and stronger

monetary-fiscal policy synergy.

There were no major changes to BI’s assessment of the economic outlook. And despite rising

fuel prices, the BI assessed that headline inflation will stay within the 1.5-3.5% target, helped

by the government’s policy support. The BI also indicated that core inflation should remain

below 3.0%, after signs of rising and broadening price pressures in recent months (see

Indonesia: Rising and broadening inflation in June, 1 July 2026 ).

J.P. Morgan’s view: We expect another 25bp hike in September

We maintain our terminal rate forecast at 6.0%, penciling in another hike of 25bp in the hiking

cycle. This is premised on our view that our BI-FXPI will rise again as external headwinds

strengthen in 2H26. We expect the BI to pause in August, provided that FX pressures do not

increase sharply, before hiking again in September, thereby allowing the BI to assess the

effectiveness of FX measures today and the Fed’s policy path during the same month.

We still see a risk of additional hikes further out. However, we believe that this risk is partly

offset by the BI’s preference for non-rate measures. Importantly, we believe that this likely

reflects the BI’s concerns about the impact of hikes on the economy. As we recently

highlighted, rising interest rates could also weigh on the fiscal outlook (see Indonesia: