Fed Rate Hike Expected in Q4 Amid Global Inflationary Pressures

Bank Indonesia (BI) Governor Destry Damayanti expects the Federal Reserve to make one final interest rate hike in Q4 2026, citing persistent global inflationary pressures. The Fed recently raised its benchmark rate by 25 basis points to a range of 3.75 to 4.00 percent on September 16.

The high-interest-rate environment in the US is bolstering the US dollar against global currencies, triggering capital outflows from emerging markets toward developed economies, Damayanti explained during a hearing with Commission XI of the House of Representatives (DPR RI) at the Parliament Complex, Jakarta, on Monday. The US Dollar Index (DXY) was recorded at 101.11, while the dollar index against Asian currencies stood at 96.26.

Surging energy commodity prices, exacerbated by ongoing international conflicts in the Middle East, are a primary driver of price pressures, Damayanti attributed to the Fed's aggressive monetary tightening. Oil prices hit $125.53 per barrel as of September 24, climbing sharply from the August 2026 average of $90.88 per barrel.

While describing the global economic outlook for 2026 as 'gloomy', the BI Governor expressed optimism for a turnaround by 2027. Indonesia's central bank remains committed to a policy framework focused on maintaining external stability, with monetary policy leaning towards stability and other measures directed at driving economic growth.