Jakarta, IDN Times – Bank Indonesia (BI) is closely monitoring the impact of surging global commodity prices on domestic inflation. The central bank is particularly concerned about industries that rely heavily on imported raw materials and food supplies. Despite these pressures, BI remains confident that imported inflation currently remains under control.
Aida S. Budiman, Senior Deputy Governor of BI, explained that while imported inflation typically stems from the rupiah weakening against the US dollar via the exchange rate pass-through mechanism, the current impact is less severe than in previous periods. This resilience is attributed to a more sophisticated domestic financial market, increased utilization of hedging instruments, and BI’s consistent commitment to maintaining currency stability.
“Due to our progress in deepening the money market, the availability of hedging transactions, and our steadfast commitment to exchange rate stabilization, we have observed that the exchange rate pass-through effect is gradually diminishing,” Aida stated during the BI Board of Governors meeting press conference on Wednesday (May 20, 2026).
Rising Commodity Prices and Geopolitical Risks
Although pressure from the exchange rate has begun to subside, BI has identified new threats stemming from rising commodity prices caused by escalating global geopolitical tensions and disrupted international supply chains. The closure of the Strait of Hormuz, the intensification of conflicts in the Middle East, and ongoing logistical bottlenecks have forced energy and food prices upward. There is growing concern that these factors could increase national industrial production costs and trigger broader inflationary pressures.
“As of early this week, Brent crude oil prices have reached 93 US dollars per barrel year-to-date, and the trend continues to rise,” Aida added.
Industrial Sector Impact
The upward price trend is not limited to oil. Global LNG prices have surged significantly, including supplies from Qatar, which accounts for approximately 18 percent of the world’s LNG requirements. Similar increases have affected other key commodities, including coal, crude palm oil (CPO), and nickel. These developments directly impact industrial sectors dependent on imports, ranging from manufacturing and food and beverage to transportation and energy.
Regarding inflation, BI noted that pressure is beginning to emerge within the administered prices group, driven by rising prices for non-subsidized fuel and aviation fuel. However, core inflation and volatile food prices remain stable. “Core inflation and volatile food prices continue to be well-managed,” she noted.
BI Rate Hike to Anchor Inflation Expectations
Recognizing that global uncertainty will persist for some time, the central bank is strengthening coordination with both central and regional governments through the Inflation Control Teams (TPIP and TPID) to safeguard price stability and household purchasing power.
As a proactive measure, BI has raised the BI Rate by 50 basis points to bolster the rupiah and ensure that inflation expectations remain anchored. “We project that inflation throughout 2026-2027 will stay within our target range of 2.5 percent plus or minus 1 percent,” Aida concluded.
Rupiah Strengthens to Rp17,653 per US Dollar Following BI Rate Hike
BI Raises Benchmark Interest Rate by 50 Bps to 5.25 Percent
Bank Indonesia Urged to Maintain Rupiah Stability
Summary
Bank Indonesia has raised its benchmark interest rate by 50 basis points to 5.25 percent to anchor inflation expectations and stabilize the rupiah amidst rising global commodity prices. While the central bank notes that the exchange rate pass-through effect is currently manageable due to a more sophisticated domestic financial market, it remains vigilant against external threats. Geopolitical tensions and supply chain disruptions have driven up the costs of energy and raw materials, posing potential risks to the national industrial sector.
To mitigate these pressures, the central bank is actively coordinating with government teams to maintain price stability and protect household purchasing power. Despite the current inflationary environment, Bank Indonesia reports that core inflation and volatile food prices remain stable. Officials project that national inflation will stay within the target range of 2.5 percent, plus or minus 1 percent, throughout 2026 and 2027.