Flooring Guide by Cinvex – The recent hike in the Bank Indonesia (BI) benchmark interest rate to 5.25 percent has sparked widespread concern regarding the ability of both households and businesses to manage their loan repayments.
Nailul Huda, Director of Digital Economy at the Center of Economic and Law Studies (Celios), noted that the immediate impact of this policy shift will be felt within the banking sector through rapid adjustments to lending rates. According to Huda, this increase poses a significant risk of default, particularly for debtors currently bound by floating rate agreements.
“Loan interest rates are inevitably set to rise. For individuals or businesses currently holding bank debt under a floating rate scheme, the cost of borrowing will increase,” Huda told JawaPos.com on Thursday, May 21.
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Huda emphasized that this situation warrants serious caution, as it threatens to diminish the debt-servicing capacity of borrowers at a time when the broader economy has not yet fully recovered. He warned that the mounting burden of monthly installments could trigger a spike in non-performing loans (NPLs). Furthermore, Huda projects that bank credit growth will likely decelerate as Bank Indonesia tightens its monetary policy.
Historically, when borrowing costs rise, both consumers and the business sector tend to postpone expansion plans and hesitate to apply for new credit facilities. “We must anticipate potential debt defaults resulting from the BI rate hike. Consequently, we should expect credit growth to face a downward correction,” Huda concluded.
The decision followed the Bank Indonesia Board of Governors Meeting held on May 19–20, 2026, which raised the BI-Rate by 50 basis points to 5.25 percent. Additionally, the Deposit Facility rate was increased by 50 basis points to 4.25 percent, and the Lending Facility rate was raised by 50 basis points to 6.00 percent.
This policy adjustment serves as a strategic measure to stabilize the Rupiah against the pressures of global volatility, largely driven by conflicts in the Middle East. It also functions as a pre-emptive step to keep inflation for 2026 and 2027 within the government-mandated target range of 2.5±1 percent.
Ultimately, this decision aligns with the central bank’s focus on monetary stability, aimed at strengthening Indonesia’s external economic resilience against ongoing global instability.
Summary
Bank Indonesia has raised its benchmark interest rate to 5.25 percent to stabilize the Rupiah against global volatility and control future inflation. Experts from the Center of Economic and Law Studies warn that this increase will lead to higher lending rates, placing significant pressure on both households and businesses. Borrowers with floating rate agreements are particularly vulnerable, as rising monthly installment costs threaten to reduce debt-servicing capacity.
The policy shift is expected to trigger a potential rise in non-performing loans while causing a deceleration in overall credit growth. As borrowing costs climb, consumers and corporations are increasingly likely to postpone expansion plans and delay new credit applications. Consequently, the central bank’s effort to strengthen economic resilience may simultaneously slow down domestic credit expansion in the near term.