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) is attempting a multi-pronged strategy to boost domestic growth while safeguarding the rupiah's stability, according to their Board of Governors meeting held on October 20-21, 2026.
Rather than adjusting its benchmark interest rate, the central bank maintained the BI-Rate at 5.75 percent, increased the Deposit Facility (DF) rate to 5 percent, and began reducing banks’ reserve requirements. This approach aims to offer banks more flexibility for credit expansion.
Simultaneously, BI bolstered its foreign exchange stabilization strategy through spot intervention, offshore non-deliverable forwards (NDFs) and domestic non-deliverable forwards (DNDFs).
The central bank's varied approach reflects a common challenge for emerging market central banks, namely, how to stimulate economic activity without detrimentally impacting the currency.
These measures indicate a more nuanced approach to monetary policy. The lowering of reserve requirements allows for credit expansion, while the higher DF rate supports short-term money market rates and foreign exchange interventions work to limit excessive rupiah volatility.
While this combination provides greater policy flexibility, it also poses a risk: will the effects of one instrument compromise the objectives of another?
Written by urgent.news from The Jakarta Post Academia's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
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- Can BI support growth without sacrificing the rupiah? thejakartapost.com
