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View all search resultsCan BI support growth without sacrificing the rupiah?
Bank Indonesia is taking a high-stakes gamble with a multi-tool strategy to spur domestic growth while defending the rupiah. But can its competing policy instruments avoid canceling each other out?
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A teller places a bundle of rupiah banknotes into a currency counter machine on June 4, 2026, at a money changer in Jakarta. (AFP/Yasuyoshi Chiba)
A
t its Board of Governors meeting on Oct. 20-21, 2026, Bank Indonesia (BI) announced a combination of monetary policies aimed at supporting economic growth while maintaining rupiah stability amid persistent global uncertainty.
Rather than adjusting its benchmark interest rate, the central bank kept the BI-Rate unchanged at 5.75 percent, raised the Deposit Facility (DF) rate to 5 percent and announced a gradual reduction in banks’ reserve requirements to provide greater flexibility for credit expansion. At the same time, BI reinforced its foreign exchange stabilization strategy through spot intervention, offshore non-deliverable forwards (NDFs) and domestic non-deliverable forwards (DNDFs).
While these measures serve different purposes, they reflect a broader challenge facing emerging market central banks, such as how to stimulate domestic economic activity without creating additional pressure on the currency.
What makes BI’s latest policy decisions particularly interesting is its apparent attempt to address these competing objectives through separate monetary instruments rather than relying solely on changes in the benchmark interest rate. Viewed together, these measures reveal a more differentiated approach to monetary policy.
Rather than relying on a single instrument to balance growth and currency stability, BI appears to be assigning separate tools to distinct but interconnected objectives. Lower reserve requirements create room for credit expansion, a higher DF rate supports the floor of short-term money market rates, while foreign exchange interventions seek to contain excessive rupiah volatility.
Although this combination offers greater policy flexibility, it also raises an important question: Whether the effects of one instrument will undermine the objectives of another.
Start with reserve requirements, which will decline for conventional banks from 9 to 8 percent in November and 7 percent in December, freeing part of the liquidity banks previously had to maintain at the central bank. That should increase balance sheet flexibility without requiring a cut in the BI-Rate.
