Bank Indonesia Holds Rates: Focus Shifts to Liquidity and Financing

Bank Indonesia left interest rates unchanged in August. For businesses, however, the more consequential part of the decision may lie beyond the 5.75% headline.

At its 18–19 August Board of Governors Meeting, Bank Indonesia maintained the BI-Rate at 5.75%, the Deposit Facility rate at 4.75% and the Lending Facility rate at 6.50%.[1]

The rate decision itself was not particularly surprising. More noteworthy was the policy package surrounding it: broader foreign-exchange hedging incentives, measures to manage banking liquidity and macroprudential policies designed to keep financing flowing into the real economy.

After a period in which higher rates were used to counter pressure on the rupiah, the policy discussion is therefore shifting from simply how high interest rates should be towards how liquidity, foreign-exchange risk and credit transmission are managed.

A firmer rupiah gives BI some breathing room

Currency stability remains a central consideration.

The rupiah strengthened to around Rp17,855 per US dollar on 18 August, appreciating 0.78% from the end of July.[1] Consumer inflation was also relatively contained at 2.88% year-on-year in July, down from 3.34% in June and still within Bank Indonesia's 2.5±1% target range.[1]

That combination helps explain why another rate increase was not considered necessary in August.

External risks, however, have not disappeared. Bank Indonesia continues to highlight elevated global financial-market uncertainty, the conflict in the Middle East, international commodity prices and the potential transmission of external shocks into the rupiah and imported inflation.[1]

For companies, the implication is straightforward: recent currency stabilisation is encouraging, but it would be premature to assume that foreign-exchange risk has passed.

The more interesting change is in hedging

One of the most business-relevant measures announced in August concerns Swap Sell Hedging.

Bank Indonesia offers a 12.5% premium-reduction incentive for eligible transactions. Previously focused on portfolio inflows, eligibility will be expanded from the second week of September to include foreign borrowing by banks and foreign direct investment entering Indonesia since 1 July 2026.[1]

The transactions may carry maturities of up to 12 months, with contracts extending to a maximum of three years and rollover permitted in line with the remaining maturity of the hedge.[1]

The change matters because attracting foreign funding is not only about the return investors can earn. Currency volatility and the cost of managing that risk also influence investment and funding decisions.

By reducing part of the hedging cost, Bank Indonesia is effectively trying to make foreign capital more attractive without relying solely on higher policy rates.

Banks with offshore borrowing, companies receiving foreign investment and investors evaluating medium-term Indonesian projects should therefore pay attention when implementation begins in September.

Liquidity is not being shut down

The monetary data tell another important part of the story.

Primary money, or M0, expanded by 18.3% year-on-year in July. Commercial banks' deposits at Bank Indonesia increased by 22.4%, while currency in circulation grew 15.1%.[1]

In other words, holding the policy rate at 5.75% should not be interpreted as an attempt to drain liquidity from the economy.

Bank Indonesia has explicitly said it intends to maintain double-digit primary-money growth to ensure ample liquidity in the money market and banking system.[1]

Bank lending, meanwhile, accelerated to 13.58% year-on-year in July from 12.67% in June.[1]

By the first week of August, banks had received Rp446.5 trillion in incentives under the Macroprudential Liquidity Incentive Policy, or KLM.[1]

Together, these figures illustrate a more nuanced policy configuration: the policy rate is being kept relatively firm to support currency and inflation stability, while liquidity and macroprudential instruments are being used to sustain credit transmission.

September and October are the next dates to watch

Two additional measures are approaching implementation.

On 1 September, Bank Indonesia will introduce KLM PPU, a macroprudential liquidity incentive policy aimed at money-market deepening. It is designed to maintain and redistribute liquidity while continuing to encourage financing to priority sectors.[1]

On 1 October, the Macroprudential Inclusive Financing Ratio, or RPIM, will take effect, encouraging banks to provide financing to inclusive and sustainable sectors.[1]

None of this means every company will suddenly receive cheaper credit.

The policy rate remains at 5.75%. Loan pricing still depends on banks' funding costs, borrower risk, collateral quality, industry conditions and individual bank strategies.

But the direction is important. Bank Indonesia is not only attempting to defend the rupiah; it is also trying to prevent relatively tight monetary conditions from becoming an excessive constraint on financing to the real economy.

Growth remains part of the equation

Indonesia's economy expanded by 5.29% year-on-year in the second quarter of 2026.[2] Growth remains solid, although the pace was below the 5.61% recorded in the first quarter.[3]

Bank Indonesia itself says household consumption remains resilient but needs further strengthening to fully capture the momentum from fiscal stimulus.[1]

This is where the policy dilemma becomes visible.

Cutting rates too quickly could renew pressure on the rupiah while global uncertainty remains elevated. Keeping monetary conditions too tight for too long, however, risks raising financing costs and slowing investment and consumption.

The August decision suggests that Bank Indonesia is attempting a middle path: holding the policy rate while relying on more targeted tools for liquidity, credit and foreign-exchange management.

What does this mean for businesses?

For companies with borrowing or refinancing needs, there is no immediate relief from a lower benchmark rate. Financing assumptions should therefore remain conservative.

For companies with US-dollar exposure through imports, debt or capital expenditure, the rupiah's recent improvement should not remove the need to review hedging strategies.

For banks, foreign investors and businesses connected to FDI, meanwhile, September's expansion of the hedging incentive deserves closer attention.

The next question is therefore not simply when Bank Indonesia will change interest rates again.

For businesses, a more useful question over the coming months may be whether abundant liquidity, hedging incentives and macroprudential measures can keep credit expanding without reigniting pressure on the rupiah.

That will be the real test of Bank Indonesia's policy mix after its August decision.