Can 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?
Bank Indonesia (BI) unveiled a multi-pronged monetary strategy on October 20-21, 2026, aimed at fostering economic growth while preserving the stability of the Indonesian rupiah. Rather than adjusting its benchmark interest rate, the central bank maintained the BI-Rate at 5.75%, raised the Deposit Facility (DF) rate to 5%, and gradually reduced reserve requirements for banks to enhance credit expansion potential.
Simultaneously, BI reinforced its foreign exchange stabilization approach through spot interventions, offshore non-deliverable forwards (NDFs), and domestic non-deliverable forwards (DNDFs). The central bank's move to decouple policy instruments to target diverse objectives is noteworthy. Lowering reserve requirements from 9% to 7% for conventional banks in November and December should boost liquidity and bank balance sheets without necessitating a reduction in the BI-Rate.
However, the simultaneous deployment of these measures prompts a critical inquiry: Will the effects of one instrument inadvertently undermine the goals of another? The BI-Rate remains the primary tool for influencing inflation, while the DF rate ensures short-term money market rates remain stable. Foreign exchange interventions, on the other hand, target excessive rupiah volatility.
Though this diversified policy approach grants BI greater flexibility, it also poses the risk of policy instruments conflicting with each other.
Written by urgent.news from The Jakarta Post's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
Also reported by 1 other outlet
- Can BI support growth without sacrificing the rupiah? thejakartapost.com
