BI Sees 'Higher for Longer' Era Ahead: What Does It Mean for Markets?

August 19, 2026 | 05:19 pm

TEMPO.CO, Jakarta – Bank Indonesia (BI) expects an era of high US interest rates, or a “higher for longer” environment, to continue weighing on global financial markets amid persistent economic uncertainty.

“For the global economy, we will face a situation of uncertainty that may last for quite some time, meaning we are entering what is called the ‘higher for longer’ era,” BI Acting Governor Destry Damayanti said at a press conference following the central bank’s Board of Governors Meeting in Jakarta on Wednesday.

Destry said the prolonged high-rate environment would put significant pressure on the global financial sector and markets, as the US Federal Funds Rate (FFR) is expected to remain elevated amid persistent inflationary pressures in the United States.

Rising oil prices and the US government's need to finance its budget deficit are also expected to increase the supply of US government bonds.

“So, all of this will create a situation in which almost everything, whether it is bond yields or interest rates, will remain high in the US,” Destry said.

She added that the situation also explains why the US dollar index against major currencies, known as the DXY, is expected to remain strong.

“Of course, this global situation will have an impact on our economy,” Destry said.

She said Bank Indonesia had conducted an extensive assessment of the global and domestic economic outlook, including projections through the end of this year.

Global Economic Outlook Remains Weak

Destry said the global economic outlook remained weak, while uncertainty in financial markets continued to be high.

The situation has been exacerbated by the continuing intensity of conflicts in the Middle East, which has pushed up oil prices and other global commodity prices.

“Global economic growth in 2026 is not yet strong and is projected at around 3.0 percent,” she said.

Meanwhile, global inflationary pressures are expected to remain elevated at around 4.5 percent in 2026, prompting tighter monetary policies globally. The US Federal Funds Rate is also projected to rise in the fourth quarter of 2026.

US Treasury yields have also increased and are expected to remain high amid growing expectations of higher FFR rates and the continued wide US budget deficit.

Persistent uncertainty in global financial markets has also dampened global investors’ appetite for portfolio investments in emerging markets. This has contributed to continued strength in the US dollar against both major currencies, as reflected in the DXY, and emerging-market currencies, reflected in the ADXY.

According to BI, these developments require stronger coordination between fiscal and monetary policies to bolster Indonesia’s external resilience, maintain stability and support domestic economic growth.

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