Bank Indonesia held its benchmark seven-day reverse repurchase rate at 5.75% on 23 September, its first policy meeting since Destry Damayanti was appointed governor. The overnight deposit facility rate remained at 4.75%, while the lending facility rate stayed at 6.50%. The decision matched the forecast of 29 of 32 economists surveyed by Reuters. The central bank also increased discounts on hedging costs for foreign funding inflows, including portfolio investment, banks' foreign borrowing and foreign direct investment.
The central bank had raised rates by a cumulative 100 basis points in three moves during May and June as the rupiah fell to record lows against the dollar. Damayanti said the decision was consistent with the rupiah stabilisation strategy amid persistent external pressures and aimed to support the inflation target of 2.5% plus or minus 1% in 2026 and 2027. Bank Indonesia retained its 2026 growth forecast of 4.9% to 5.7%. Annual inflation reached 3.19% in August, within the official 1.5% to 3.5% target range.
CURRENCY SUPPORT WITHOUT ANOTHER RATE INCREASE
The larger hedging discounts are intended to reduce foreign investors’ currency-protection costs and encourage capital inflows into rupiah assets. Senior Deputy Governor Aida Budiman said Bank Indonesia chose not to raise the BI-Rate because it also affects domestic prices. The rupiah hit a record low of 18,209 per dollar in June and recovered to around 17,800 after the rate increases, but weakened again in September amid fiscal concerns and higher oil prices.
Damayanti said that if foreign investors kept funds in Indonesia for longer, through swaps or domestic non-deliverable forwards of up to one year, the central bank could provide a larger incentive. The incentives include discounts of up to 25% on swap premiums for one-year placements and up to 30% on domestic non-deliverable forward transaction costs.
MARKETS WATCH RUPIAH PRESSURE
Three of the 32 economists polled had expected a 25-basis-point increase in September.
After the decision, the rupiah strengthened 0.37% to 17,818 per dollar, though it remained 6.82% weaker for the year to date.