Jakarta. Bank Indonesia is likely to keep its benchmark interest rate unchanged at 4.75% during the Feb. 18–19 policy meeting, according to the Institute for Economic and Social Research at the University of Indonesia’s Faculty of Economics and Business (LPEM FEB UI).

LPEM FEB UI economist Teuku Riefky said inflation surged beyond Bank Indonesia’s target range in the first month of 2026. Headline inflation reached 3.55% year-on-year in January, mainly driven by a low-base effect following last year’s 50% electricity tariff discount for certain households in January and February, pushing inflation to its highest level since May 2023.

From the financial sector, Indonesia has faced mounting pressure after announcements by MSCI and a downgrade in economic condition assessment by Moody’s. The institutions highlighted rising concerns over investment feasibility, institutional capacity, and policy coherence and transparency, triggering capital outflows from both equity and bond markets.

“Given current conditions, Bank Indonesia should consider holding its benchmark rate at 4.75% at the upcoming policy meeting, as a rate cut could worsen capital outflows,” Riefky said in the February 2026 edition of the Macroeconomic Analysis Series for Bank Indonesia’s Board of Governors Meeting, received Thursday.

He added that cutting the benchmark rate could negatively affect demand while several regions in Indonesia remain in post-disaster recovery. A rate reduction could also intensify capital outflows.

Additionally, the appointment of Thomas Djiwandono as Bank Indonesia’s new deputy governor has weighed on investor confidence amid growing signals of eroding central bank independence, as Thomas is the nephew of President Prabowo Subianto.

“Doubts over central bank independence following the appointment of the president’s nephew as deputy governor have further weakened investor confidence and exacerbated capital outflows,” he said.

At its previous meeting on Jan. 20–21, Bank Indonesia kept the benchmark rate at 4.75%, with the Deposit Facility at 3.75% and the Lending Facility at 5.5%. Since September 2024, the BI rate has fallen by 150 basis points, 25 basis points in September 2024 and 125 basis points throughout 2025, reaching 4.75% in December 2025, the lowest level since 2022.

Indonesia has recorded significant capital outflows in recent weeks, particularly following the MSCI and Moody’s announcements. After MSCI’s decision, equity market outflows reached $1.01 billion. Bond market outflows totaled $0.37 billion following Moody’s revised assessment. Cumulatively, Indonesia logged $1.06 billion in capital outflows over the past 30 days.

As a result, the yield on 10-year government bonds rose to 6.40% on Feb. 13 from 6.31% on Jan. 19.

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