Fed Rate Hike Looms: BI Sees Another Increase Before End of 2026

Bank Indonesia's Governor Destry Damayanti believes that the US Federal Reserve will increase its benchmark interest rate by another 25 basis points before the end of 2026. This prediction comes as global oil prices have surged to $125.53 per barrel, putting pressure on emerging-market currencies and capital flows.

The stronger US dollar has also affected global capital flows, with funds shifting from emerging markets towards developed economies, particularly the United States. Destry said that this has strengthened the dollar against other major currencies, with the DXY reaching 101.11 and the index for Asian currencies reaching 96.26.

To mitigate the impact of a stronger US dollar on the Indonesian rupiah, Bank Indonesia plans to optimize foreign-exchange market intervention instruments and deepen the domestic financial market. The central bank is also encouraging greater currency diversification through local currency transactions (LCT) while strengthening local-currency liquidity to reduce dependence on the US dollar.