Indonesia Braces for Prolonged 'Higher For Longer' Era Amid Global Economic Uncertainty

Bank Indonesia (BI) expects a prolonged period of high US interest rates, known as 'higher for longer', to continue affecting global financial markets due to persistent economic uncertainty. Acting Governor Destry Damayanti said that this environment will put significant pressure on the global financial sector and markets.

The prolonged high-rate environment is expected to be driven by the US Federal Funds Rate (FFR) remaining elevated amid ongoing inflationary pressures in the United States, rising oil prices, and the need for the US government to finance its budget deficit. As a result, all market indicators, including bond yields and interest rates, are expected to remain high in the US.

The situation is also likely to maintain the strength of the US dollar against major currencies, as reflected by the DXY index. Bank Indonesia has conducted an extensive assessment of the global and domestic economic outlook, which remains weak with a projected growth rate of 3.0 percent in 2026.