Bank Indonesia has kept its benchmark interest rate unchanged at 5.75% while adjusting other policy measures to support the rupiah and maintain economic growth. The decision comes as renewed pressure on Indonesia’s currency and a sharp stock market sell-off raise concerns about foreign investor confidence.
The central bank announced the decision following its October 20-21 policy meeting. Alongside holding the benchmark rate steady for a fourth consecutive review, it raised the overnight deposit facility rate to 5.00% from 4.75%, while keeping the lending facility rate at 6.50%.
MSCI Warning Adds Pressure to Indonesian Markets
Indonesia’s financial markets have faced increased volatility after global index provider MSCI warned that the country’s equity market could be downgraded from emerging-market status to standalone-market status.
The possibility of reclassification has raised concerns about foreign investment flows, as some international funds track MSCI indexes when making investment decisions. The resulting market pressure has added to the challenges facing the rupiah, which has weakened against the US dollar.
Bank Indonesia reported that the rupiah stood at Rp17,985 per US dollar on October 20, down 0.61% from its position at the end of September.
Central Bank Uses a Broader Policy Mix
Rather than increasing its main policy rate, Bank Indonesia is relying on a combination of monetary and liquidity measures to address currency pressure while supporting lending.
The central bank is strengthening incentives for currency-hedging instruments and measures designed to attract foreign capital. It also plans to reduce conventional commercial banks’ reserve requirements from 9% to 8% on November 1 and then to 7% on December 1, freeing up more funds for lending.
These measures reflect the challenge of stabilising the currency without imposing higher borrowing costs on households and businesses.
Inflation Remains Within the Target Range
Indonesia’s inflation rate reached 3.28% year on year in September 2026, compared with 3.19% in August. The figure remains within Bank Indonesia’s target range of 1.5% to 3.5%.
Core inflation eased to 2.84%, while volatile food inflation rose to 5.03%, partly reflecting weather-related production disruptions. The central bank said it would continue using its policy tools to keep inflation within its target range in 2026 and 2027.
Balancing Currency Stability With Economic Growth
Bank Indonesia faces a difficult balancing act. Raising interest rates could help support the rupiah by making domestic assets more attractive, but it could also increase borrowing costs and weigh on credit demand.
Keeping the benchmark rate unchanged while easing reserve requirements may help banks maintain lending capacity. However, persistent capital outflows, global financial uncertainty and further pressure on the currency could complicate the strategy.
The central bank projects Indonesia’s economic growth at 4.9% to 5.7% for 2026, while continuing to prioritise currency stability and controlled inflation.
Conclusion
Bank Indonesia’s latest decision reflects an effort to protect the rupiah without undermining domestic economic activity. By holding its benchmark rate at 5.75% and adjusting deposit rates, reserve requirements and foreign-exchange measures, the central bank is pursuing a more targeted response to market pressure.
The effectiveness of this approach will depend on investor confidence, global financial conditions and whether Indonesia can sustain capital inflows while maintaining economic growth.
