Bank Indonesia holds rate, eases RRR to spur lending
Jakarta equities recovered after the decision, but the rupiah retained its position as Asia's weakest currency this year.
Policy Adjustments for Lending Growth
Bank Indonesia (BI) maintained its benchmark interest rate for the fourth consecutive policy review on Wednesday, 22 October 2026. Concurrently, the central bank announced a gradual reduction in the reserve requirement ratio (RRR) for banks, decreasing it to 7% from 9%. This move aims to stimulate lending within the Indonesian economy.
Separately, BI increased its overnight deposit rate by 25 basis points (bps) to 5%. Radhika Rao, a senior economist at DBS, noted that BI showed a preference for supporting the rupiah through its wider policy tools, including foreign exchange (FX) intervention and hedging facilities, rather than further rate increases.
Indonesian Market Reaction
Following the central bank's announcements, Indonesian equities recovered early losses to trade flat on Wednesday. The Jakarta Composite Index stabilised near its previous close of 5,278.888 points, reversing an earlier 0.8% decline. However, the Indonesian rupiah slipped back below the 18,000 level against the US dollar.
The currency has depreciated by 7.4% this year, retaining its position as the worst-performing Asian currency. Analysts surveyed by Reuters between 13 and 19 October were divided on whether the central bank would hold or raise rates.
Analyst Outlook and Market Risks
Chandresh Jain, EM Asia, Rates and FX Strategist at BNP Paribas, stated that these policy decisions will support both the Indonesian bond and equity markets. Jain expressed a positive outlook on short-end Indonesian government bonds (up to five years) and anticipates BI will only hike rates if the USDIDR pair breaches the 18,500 level.
Adding a layer of uncertainty, MSCI has warned of a potential downgrade of Indonesia's market status from “emerging market” to “standalone.” Such a reclassification could trigger a selloff by passive funds tracking global indexes.
Bank Indonesia's measured policy approach balances domestic lending stimulation with external currency pressures. Investors in Indonesian bonds and equities will closely monitor the rupiah's stability and any further developments regarding MSCI's potential reclassification, which could directly influence capital flows into Indonesian assets.
The central bank's reliance on non-rate tools for rupiah support suggests a strategic shift. Future policy decisions will likely hinge on these factors, particularly the rupiah's performance against the US dollar.
This article is journalism, not investment advice; consult a licensed professional before making financial decisions. Market data is indicative, may be delayed, and should be verified with your broker or exchange before use.
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