Jakarta. Escalating Middle East tensions are heightening global inflation risks, prompting calls for Bank Indonesia to hold its benchmark rate at 4.75% to safeguard rupiah stability and contain imported price pressures.

Economist Teuku Riefky from the Institute for Economic and Social Research at the University of Indonesia (LPEM FEB UI) said maintaining the BI Rate is crucial amid rising uncertainty linked to the Iran–Israel conflict, which has also drawn in the United States.

“We believe Bank Indonesia should maintain the BI Rate at 4.75% to safeguard rupiah stability and control inflation,” Riefky said in a research note on Tuesday.

He warned that geopolitical tensions in the Middle East could drive up global energy prices, adding pressure to Indonesia’s imported inflation. Seasonal factors during Ramadan are also expected to push up prices of key goods, particularly food and transportation services.

Riefky added that exchange rate stability remains a key consideration for monetary policy. A rate cut, he said, could narrow Indonesia’s interest rate differential with other countries, potentially intensifying pressure on the rupiah, which has already been weakening.

By midday Tuesday, the rupiah had slipped 12 points, or 0.07%, to Rp 16,985 per US dollar.

According to Riefky, the currency’s depreciation reflects a mix of global and domestic pressures. On the external front, geopolitical conflict has fueled market uncertainty. Domestically, investors are increasingly scrutinizing fiscal credibility, including concerns over a possible widening of the budget deficit cap beyond 3% of gross domestic product.

“In this situation, Bank Indonesia needs to remain prudent, strengthen coordination with the government, and continue to demonstrate its institutional independence,” Riefky said.

Add as a preferred source on Google +