Bank Indonesia Holds Rate at 5.75%, Unveils Four August Policies

Bank Indonesia has decided to keep its benchmark interest rate, the BI Rate, at 5.75% for the second consecutive month, as announced during the August 2026 Board of Governors Meeting. This decision comes alongside the introduction of several new policies aimed at stabilizing the Indonesian rupiah and fostering economic growth.

"Although we are maintaining the interest rate at the same level for two months now, at 5.75 percent, we are simultaneously introducing other policies and instruments to maintain the stability of the rupiah exchange rate," stated Acting Governor of Bank Indonesia, Destry Damayanti, during an online press conference on Wednesday.

The central bank outlined four key policy directions for August 2026, encompassing monetary policy, macroprudential measures, and payment systems. Firstly, BI will enhance its monetary policy effectiveness for rupiah stabilization and inflation control, targeting 2.5±1% for 2026 and 2027. This will involve optimizing foreign exchange intervention strategies, including Non-Deliverable Forward (NDF) transactions in overseas markets and spot and Domestic Non-Deliverable Forward (DNDF) transactions domestically. BI will also manage money market interest rates in line with the BI Rate and pro-market monetary instrument rates, supported by strengthened pro-market monetary operations.

Secondly, to bolster rupiah exchange rate stability and ensure sufficient rupiah liquidity, BI is expanding eligible transactions for foreign funding incentives. This includes reducing the premium for hedging swaps with BI by 12.5%, extending coverage beyond portfolio inflows to include foreign loans by banks and foreign direct investment. These expanded hedging swap transactions, with a maximum term of 12 months and a contract period of up to three years, can be extended. The policy is effective from the second week of September 2026 for foreign loan funds and foreign direct investment received since July 1, 2026.

Thirdly, BI is preparing to implement macroprudential policies, specifically the Macroprudential Liquidity Incentive Policy for Money Market Deepening (KLM PPU). This policy aims to ensure adequate liquidity and encourage its redistribution, while still promoting credit and financing to priority sectors. It is set to take effect on September 1, 2026. The article also mentions an "Inclusive Financing Ratio Policy" but does not provide further details.

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Although we are maintaining the interest rate at the same level for two months now, at 5.75 percent, we are simultaneously introducing other policies and instruments to maintain the stability of the rupiah exchange rate.