Bank Indonesia holds at 5.75% and pays more to hedge dollar inflows
Serguey Asael Shinder2 min readBank Indonesia's Board of Governors decided on 22-23 September to keep the BI-Rate at 5.75%, with the deposit facility at 4.75% and the lending facility at 6.50%. The central bank said the decision is consistent with stabilising the rupiah against persistently strong external headwinds, keeping inflation within its 2.5% plus or minus 1 percentage point target in 2026 and 2027, and supporting growth.
The more concrete news is in the accompanying measures, which lean on hedging rather than rates to attract foreign money. Bank Indonesia is increasing its incentives for conventional swap buy hedging with the central bank on underlying foreign funding - portfolio inflows, foreign loans taken by banks and foreign direct investment. The premium reduction rises from 12.5% for all tenors to 15% for three months, 20% for six months and 25% for twelve months. For domestic non-deliverable forwards (DNDF) on the same kinds of flows, the reduction rises from 15% to 25% for six months and 30% for twelve months. Incentives for transactions in local currencies with partner countries continue.
On the intervention side, the statement says Bank Indonesia is optimising its strategy across offshore non-deliverable forwards and domestic spot and DNDF markets, and managing money market rates in line with the BI-Rate through what it calls pro-market monetary operations. Macroprudential policy stays accommodative to support bank lending, and payment system policy remains focused on digital payments and infrastructure resilience.
What it means
Holding the rate while cutting the cost of hedging is a specific choice. A foreign investor weighing rupiah assets looks at the return after the cost of protecting against currency moves; by lowering that cost for longer tenors, Bank Indonesia raises the hedged return on staying invested without touching the policy rate, which would affect the whole domestic economy.
It also shifts some currency risk onto the central bank's balance sheet, which is the price of the approach. Whether it works will show in portfolio flows and in how much of Indonesia's foreign funding is hedged over the coming months, rather than in the headline rate.