Key Takeaways
- • Bank Indonesia kept its 7-day reverse repurchase rate unchanged at 5.75% on Wednesday, October 21, 2026, though 15 of 29 economists in a Reuters poll had expected that hold, while the rest had expected a hike of at least 25 basis points.
- • The central bank raised its overnight deposit facility rate by 25 bps to 5% and left the overnight lending rate unchanged at 6.50%.
- • Bank Indonesia will cut the reserve requirement ratio to 8% from 9% by early November and to 7% on December 1, freeing an estimated 190 trillion rupiah ($10.56 billion) for the banking system.
- • The moves followed a record two-day stock market rout triggered by an MSCI warning that it could move Indonesian equities to "standalone" market status; the rupiah, down over 7% against the dollar this year, remains the worst-performing emerging Asian currency.
- • Capital Economics' Gareth Leather called the policy mix "very confusing," warning it risks further undermining the central bank's credibility.
Summary
Indonesia's central bank kept its benchmark policy rate unchanged on Wednesday but adopted a two-pronged response to market volatility and slowing job creation, according to Reuters. Bank Indonesia held the 7-day reverse repurchase rate at 5.75%, in line with the majority of a Reuters poll of 29 economists, though the remainder had expected a hike of at least 25 basis points. At the same time, it raised the overnight deposit facility rate by 25 bps to 5% and left the overnight lending rate at 6.50%.
The decisions came days after Indonesia's equity market suffered a record-breaking two-day rout, a decline steeper than any recorded during the Asian financial crisis. The sell-off was triggered by an MSCI warning that it could reclassify Indonesian equities to "standalone" market status. The rupiah weakened slightly after the announcement and remains the worst-performing emerging Asian currency this year, having lost more than 7% against the US dollar.
Governor Destry Damayanti said the reserve requirement ratio will fall to 8% from 9% by the start of November and to 7% on December 1, releasing 190 trillion rupiah ($10.56 billion) into the banking system. The liquidity incentive mechanism will also be adjusted. Deputy Governor Solikin M. Juhro said the deposit facility hike is intended to support market stability, while the RRR reduction gives banks greater flexibility to lend, which could support job creation. Bank Danamon economist Irman Faiz said the deposit rate increase could prevent the added liquidity from pushing money market rates too low and weakening the rupiah carry.
Capital Economics' Gareth Leather described the moves as "very confusing," arguing the central bank is attempting to support the rupiah and boost growth simultaneously, which he questioned was feasible. "Either way, they risk further undermining their credibility," he said.
Bank Indonesia also plans to expand discounts on FX hedging costs using domestic non-deliverable forward instruments to make rupiah assets more attractive to foreign investors. Destry said earlier hedging discounts had attracted $9.9 billion in capital inflows. She added that the central bank is monitoring capital outflows linked to the MSCI developments and that past rate hikes totalling 100 bps were sufficient to anchor inflation. Those hikes were delivered in three moves between May and June, when the rupiah hit an all-time low.
The article notes that investors have been concerned about fiscal sustainability under President Prabowo Subianto, citing populist spending plans and costly fuel subsidies, as well as questions over central bank independence.
The decisions came days after Indonesia's equity market suffered a record-breaking two-day rout, a decline steeper than any recorded during the Asian financial crisis. The sell-off was triggered by an MSCI warning that it could reclassify Indonesian equities to "standalone" market status. The rupiah weakened slightly after the announcement and remains the worst-performing emerging Asian currency this year, having lost more than 7% against the US dollar.
Governor Destry Damayanti said the reserve requirement ratio will fall to 8% from 9% by the start of November and to 7% on December 1, releasing 190 trillion rupiah ($10.56 billion) into the banking system. The liquidity incentive mechanism will also be adjusted. Deputy Governor Solikin M. Juhro said the deposit facility hike is intended to support market stability, while the RRR reduction gives banks greater flexibility to lend, which could support job creation. Bank Danamon economist Irman Faiz said the deposit rate increase could prevent the added liquidity from pushing money market rates too low and weakening the rupiah carry.
Capital Economics' Gareth Leather described the moves as "very confusing," arguing the central bank is attempting to support the rupiah and boost growth simultaneously, which he questioned was feasible. "Either way, they risk further undermining their credibility," he said.
Bank Indonesia also plans to expand discounts on FX hedging costs using domestic non-deliverable forward instruments to make rupiah assets more attractive to foreign investors. Destry said earlier hedging discounts had attracted $9.9 billion in capital inflows. She added that the central bank is monitoring capital outflows linked to the MSCI developments and that past rate hikes totalling 100 bps were sufficient to anchor inflation. Those hikes were delivered in three moves between May and June, when the rupiah hit an all-time low.
The article notes that investors have been concerned about fiscal sustainability under President Prabowo Subianto, citing populist spending plans and costly fuel subsidies, as well as questions over central bank independence.
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