Bank Indonesia has decided to keep its benchmark BI Rate at 5.75% after its Board of Governors Meeting on August 18-19, 2026 (19/8).

The central bank also maintained the Deposit Facility rate at 4.75% and the Lending Facility rate at 6.50%.

The decision is consistent with efforts to strengthen rupiah exchange rate stability amid high global volatility caused by the war in the Middle East, maintain the 2.5% ± 1% inflation target in 2026 and 2027, and support sustainable economic growth.

Bank Indonesia will continue expanding policy incentives and other measures to increase foreign capital inflows, strengthen rupiah stability, improve liquidity, reduce liquidity segmentation in money markets and banking, and accelerate the deepening of money and foreign exchange markets.

The central bank will also maintain an accommodative macroprudential policy to encourage bank lending and financing to the real sector while maintaining financial system stability.

Payment system policy will continue to support economic activity through wider digital payment acceptance, a stronger payment system industry structure, and more reliable and resilient payment infrastructure.

Global Uncertainty Challenges Indonesia’s Economic Stability

Bank Indonesia said the global economic outlook remains weak, with financial market uncertainty still high.

The continued intensity of the war in the Middle East has pushed oil and other global commodity prices higher.

Global economic growth in 2026 is projected at around 3.0%, while global inflation is expected to remain high at around 4.5%.

These conditions are expected to encourage tighter global monetary policies, including a projected increase in the US Federal Funds Rate in the fourth quarter of 2026.

US Treasury yields have also increased and are expected to remain high due to stronger expectations of higher US interest rates and the continued wide US fiscal deficit.

Global financial market uncertainty has also reduced investor preference for portfolio investment in emerging markets.

Bank Indonesia said these developments require stronger fiscal and monetary policy coordination to strengthen external resilience, maintain stability, and support domestic economic growth.

Rupiah Strengthens as Bank Indonesia Expands Stabilization Measures

The rupiah stood at Rp17,855 per US dollar on August 18, 2026, strengthening 0.78% compared with the end of July (18/8).

The appreciation was supported by Bank Indonesia’s strategy to optimize monetary instruments and expand policy incentives to increase foreign portfolio investment inflows and strengthen rupiah stability, while accelerating the deepening of money and foreign exchange markets.

Bank Indonesia has increased the incentive for Swap Jual Lindung Nilai to 12.5% and provided a 15% incentive for DNDF Jual Lindung Nilai.

It has also provided incentives to increase Local Currency Transactions with partner countries through a 10% Swap Beli Lindung Nilai premium and a 10% reduction in the DNDF Jual Lindung Nilai premium.

Bank Indonesia will expand the underlying transactions eligible for the 12.5% premium reduction incentive for Swap Jual Lindung Nilai.

Previously limited to portfolio inflows, the transactions will also include foreign loans by banks and foreign direct investment.

The expanded hedging swap transactions will take effect in the second week of September 2026 for foreign loan funds and foreign direct investment entering Indonesia from July 1, 2026.

The hedging swap transactions will have a maximum tenor of 12 months, with a maximum contract period of three years, and may be rolled over according to the remaining hedging contract period.

Indonesia’s Economy Grows 5.29% in Q2 2026

Indonesia’s economy grew 5.29% year-on-year in the second quarter of 2026, compared with 5.61% in the previous quarter (30/6).

The growth was largely supported by fiscal stimulus, which increased government consumption and investment.

Government consumption remained strong due to higher personnel spending, including the 13th-month salary payment, as well as spending on goods and services related to the Free Nutritious Meals program.

Household consumption remained positive but needs to be strengthened further by taking advantage of the strong fiscal stimulus.

Exports also need to be increased to strengthen the structure of economic growth.

Bank Indonesia expects Indonesia’s economic growth in 2026 to remain within a range of 4.9% to 5.7%, supported by the implementation of various government stimulus programs and maintained confidence among economic actors.

Indonesia’s trade balance recorded a cumulative surplus of US$3.58 billion from January to June 2026, while June recorded a deficit of US$0.45 billion.

Foreign portfolio investment recorded net inflows of US$1.8 billion in the third quarter of 2026 through August 14, supported by government global bond issuance as well as inflows into government securities and Bank Indonesia Rupiah Securities.

Indonesia’s foreign exchange reserves stood at US$145.3 billion at the end of July 2026, equivalent to 5.5 months of imports or 5.3 months of imports and government external debt payments.

The position remained above the international adequacy standard of around three months of imports.

Bank Lending and Digital Payments Continue to Grow

Consumer Price Index inflation stood at 2.88% year-on-year in July 2026, down from 3.34% in June (31/7).

Core inflation remained at 2.76%, while administered price inflation reached 3.58% following an adjustment in the price of non-subsidized Pertamax fuel.

Volatile food inflation slowed to 2.52%, influenced by the harvest of horticultural commodities, including various types of chili and shallots.

Bank Indonesia will continue strengthening its monetary policy mix to keep inflation within the 2.5% ± 1% target in 2026 and 2027.

Primary money, or M0, grew 18.3% year-on-year in July 2026, while broad money, or M2, increased 8.7% year-on-year in June.

Bank Indonesia said efforts to maintain adequate liquidity in money markets, banking and the economy would continue.

Bank lending grew 13.58% year-on-year in July 2026, up from 12.67% in June.

The increase was supported by accommodative macroprudential policy through the optimization of the Macroprudential Liquidity Incentive to encourage lending and financing to priority sectors.

As of the first week of August 2026, banks had received Rp446.5 trillion in Macroprudential Liquidity Incentives.

The allocation consisted of Rp368.4 trillion through the financing channel, Rp73.2 trillion through the interest rate channel, and Rp4.9 trillion through the financing-to-funding channel.

The banking sector’s resilience remained strong, with a Capital Adequacy Ratio of 23.70% in June.

Gross and net Non-Performing Loan ratios stood at 2.09% and 0.82%, respectively, while the Liquid Assets to Third-Party Funds ratio was 23.10% in July.

Digital payment transactions reached 5.50 billion in July, growing 28.69% year-on-year. Transactions through internet and mobile applications grew 9.39% and 24.25%, respectively, while QRIS transactions grew 82.42%, supported by an increase in users and merchants.

BI-FAST retail transactions reached 546 million, growing 31.62%, with a transaction value of Rp1,355 trillion.

Meanwhile, BI-RTGS large-value transactions reached 0.99 million, growing 3.12%, with transaction value increasing 1.54% to Rp20,097 trillion.

Bank Indonesia will also strengthen preparations for the Macroprudential Liquidity Incentive for Money Market Deepening, which will take effect on September 1, 2026, and the Macroprudential Inclusive Financing Ratio policy, which will take effect on October 1, 2026.

The central bank will promote the Indonesia Credit Card, launched on August 17, 2026, and strengthen industry readiness for the expansion of the 0% QRIS Merchant Discount Rate for transactions up to Rp100,000, which will take effect on October 1, 2026.

Bank Indonesia will also hold the Indonesia Digital Economy and Finance Festival in collaboration with the Indonesia Fintech Summit & Expo 2026 on September 24-26, 2026, in cooperation with the Coordinating Ministry for Economic Affairs, the Financial Services Authority, and the financial industry.

PHOTO: FREEPIK

This article was created with AI assistance.

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