Jakarta. Bank Indonesia's decision to raise its benchmark interest rate to 5.50% in early June is expected to push up bank lending rates within the next three to six months, potentially increasing borrowing costs for households and businesses, an economist said on Sunday.

The central bank has raised the BI Rate by a cumulative 75 basis points over the past two months as part of efforts to stabilize the rupiah amid heightened global volatility stemming from conflict in the Middle East.

The tightening cycle could eventually increase monthly loan repayments, particularly for middle-class households that rely heavily on consumer credit to finance home and vehicle purchases.

David Sumual, Chief Economist at Bank Central Asia, said changes in the BI Rate do not immediately translate into higher lending rates because banks typically adjust their loan pricing with a time lag.

“There is usually a lag between a BI Rate increase and higher lending rates. The impact is typically felt around three to six months later,” David said.

According to him, the magnitude and timing of future loan-rate increases will depend on competitive conditions across different banking segments. However, middle-income borrowers are likely to be the most affected.

“The group most affected is the middle class, which tends to rely heavily on consumer loans such as mortgages and vehicle financing,” he said.

Higher borrowing costs could also increase the risk of loan defaults across both consumer and business lending portfolios if households and companies struggle to absorb the additional financial burden.

David therefore advised borrowers with significant consumer debt exposure to review their finances and strengthen household cash-flow management before higher rates begin to take effect.

“Consumers need to remain prudent in managing their spending. For high-interest consumer debt, they should consider refinancing into loans with lower interest rates if possible,” he said.

Despite the potential impact on borrowers, David said the effect on household purchasing power could be mitigated if the government introduces sufficient stimulus measures to support domestic consumption.