Bank Indonesia Expands Support for Rupiah

Bank Indonesia is expanding measures to support the rupiah after a leadership change and renewed pressure on the currency. The central bank will continue domestic and offshore intervention, maintain its higher benchmark rate and offer foreign investors more favourable currency-hedging terms, Bloomberg reported.

Rupiah Stability Remains the Main Priority

Acting Governor Destry Damayanti has confirmed that monetary policy will remain broadly unchanged following Perry Warjiyo’s resignation. The central bank will continue using the currency-market and monetary instruments deployed under its previous leadership.

The rupiah remains one of Asia’s weaker currencies in 2026. It fell to a record low of approximately 18,190 per US dollar in early June. Three interest-rate increases helped it recover part of the decline, but it continued to trade close to 18,000.

Following the announcement of Warjiyo’s resignation on July 27, the currency briefly weakened to about 17,992 per dollar. The limited movement nevertheless demonstrated the market’s sensitivity to changes at the central bank.

The authority plans to support the currency through spot-market operations, domestic derivatives and non-deliverable forwards traded offshore.

Destry Damayanti Became Acting Governor

Warjiyo had led Bank Indonesia since 2018 and was serving his second term. He voluntarily submitted his resignation on July 25, 2026, citing personal reasons. The decision was publicly announced two days later.

The Board of Governors appointed Damayanti as acting governor. She previously served as senior deputy governor and was already involved in monetary policy and foreign-exchange management.

Decisions are made collectively by the Board of Governors, meaning that the departure of one official does not automatically change the institution’s stance. Damayanti urged market participants to remain calm and said the central bank would continue operating without interruption, Antara reported.

She will lead the institution until a permanent governor is appointed under Indonesia’s statutory procedure.

Three Intervention Channels Support the Currency

The first instrument is the sale of US dollars and purchase of rupiah in the spot market. These transactions settle quickly and directly increase the supply of foreign currency.

The second channel consists of offshore non-deliverable forwards. A forward is an agreement fixing an exchange rate for a future date. A non-deliverable contract does not involve the physical transfer of rupiah; the parties settle the difference between the agreed and reference rates in another currency.

The third channel uses similar non-deliverable forwards inside Indonesia. Companies and investors can use these instruments to hedge currency exposure without immediately buying physical dollars.

The central bank also purchases government securities. Such purchases totalled 188.68 trillion rupiah between the beginning of 2026 and July 21, including 76.62 trillion rupiah in the secondary market.

These operations are used for liquidity management and bond-market stability. Published data do not indicate that the entire amount was directly connected with defending the rupiah.

Foreign-exchange intervention is primarily intended to limit excessive volatility rather than maintain a permanently fixed exchange rate.

Benchmark Rate Increased by One Percentage Point

The benchmark rate stood at 4.75% at the beginning of 2026. Policymakers increased it by 0.5 percentage point to 5.25% at their May 19–20 meeting, the first tightening in almost two years.

An unscheduled decision on June 9 lifted the rate by another 0.25 percentage point to 5.5%. The regular June 17–18 meeting produced a third increase to 5.75%.

Borrowing costs therefore rose by one percentage point, or 100 basis points. One basis point equals one-hundredth of a percentage point.

At the July 21–22 meeting, the benchmark was held at 5.75%. The deposit-facility rate remained at 4.75%, while the lending-facility rate stayed at 6.5%.

The decision was less restrictive than markets expected. Twenty of 33 economists surveyed by Reuters had forecast another quarter-point increase, according to The Business Times.

Currency-Hedging Incentives Will Be Expanded

Instead of delivering a fourth rate increase, policymakers expanded incentives for foreign investors. The measures are designed to attract capital into government securities and central-bank instruments denominated in rupiah.

The July package increased the incentive applied to selected foreign-exchange swap premiums from 10% to 12.5%. A currency swap involves exchanging currencies and reversing the transaction at an agreed future date.

Certain domestic non-deliverable forward transactions will receive an incentive equal to 15% of the relevant premium. The measure is intended to reduce the cost of protecting investment returns against rupiah depreciation.

The official July policy decision presented these measures as a way to attract foreign portfolio capital without a further increase in domestic interest rates.

The authority is also expanding local-currency settlement arrangements with Malaysia, Thailand, China, Japan, South Korea and the United Arab Emirates. Direct settlement reduces the need for companies to obtain dollars for bilateral trade and investment payments.

Offshore spot and swap transactions between the rupiah and the Chinese renminbi are being expanded to increase liquidity for direct transactions between Indonesia and China.

Foreign Holdings of Central-Bank Securities Increased

Bank Indonesia issues short-term rupiah securities known as SRBI. They are used to manage monetary liquidity and offer investors a yield in the local currency.

Non-resident holdings increased from 238.09 trillion rupiah on June 15 to 288.65 trillion rupiah on July 20. Foreign investors held 27.11% of the securities outstanding.

Foreign portfolio investment in government bonds and central-bank securities generated net inflows of approximately $8.5 billion during the second quarter. Net inflows slowed to about $100 million during the first 20 days of the third quarter and were concentrated mainly in government securities.

High yields support demand for rupiah assets, but investors must compare interest income with potential currency losses. Returns measured in dollars can turn negative if the rupiah depreciates by more than the income earned on the securities.

Reserves Remain Above the Minimum Benchmark

Indonesia’s reserve assets stood at $145.6 billion at the end of June, up from $144.9 billion in May. The total was sufficient to finance approximately 5.5 months of imports, or 5.4 months when government external-debt payments were included.

The commonly used international adequacy benchmark is about three months of imports. Indonesia’s reserve buffer therefore remains substantially above that level.

Reserves had reached $156.5 billion at the end of 2025. They declined by $10.9 billion during the first half of 2026.

The movement reflected a combination of currency intervention, external-debt payments, tax receipts and services income. Available figures do not isolate the exact amount spent exclusively on defending the rupiah.

Prolonged intervention can still reduce the foreign-currency buffer. Policymakers are therefore combining direct dollar sales with measures intended to attract capital and reduce domestic demand for the US currency.

Balance of Payments Increases Rupiah Vulnerability

Indonesia recorded a current-account deficit of approximately $4 billion, or 1.1% of gross domestic product, in the first quarter. That compared with $2.5 billion, or 0.7% of GDP, during the final quarter of 2025.

The current account covers international trade in goods and services, investment income and current transfers. A deficit means that related foreign-currency payments exceeded receipts.

The overall balance of payments recorded a $9.1 billion deficit in the first quarter. Direct investment retained a positive balance, while other investment flows weakened because of foreign-loan repayments and the placement of funds abroad.

The trade balance maintained a cumulative $4.03 billion surplus between January and May, although May alone produced a $1.61 billion deficit. Policymakers expect the full-year current-account deficit to remain between 0.5% and 1.3% of GDP.

Inflation Approached the Upper Target Limit

Annual inflation accelerated to 3.34% in June from 3.08% in May. Consumer prices rose 0.44% during the month and 1.79% from the start of the year.

The official target is 2.5%, with a tolerance band of one percentage point in either direction. Inflation was therefore approaching the 3.5% upper limit but remained within the corridor.

Core inflation stood at 2.76%. Administered-price inflation accelerated to 3.42% after increases in unsubsidised fuel and aviation-fuel prices. Volatile-food inflation reached 5.58%.

The figures were published by BPS-Statistics Indonesia. A weaker rupiah raises the domestic price of imported fuel, machinery, raw materials and some food products, linking exchange-rate stabilisation directly to inflation control.

Higher Rates Create Risks for Credit Growth

The central bank expects Indonesia’s economy to expand by 4.9%–5.7% in 2026. It is maintaining incentives for commercial-bank lending while pursuing a more restrictive approach to currency and inflation risks.

Bank lending increased 12.67% in June from a year earlier, accelerating from 11.51% in May. Investment loans expanded 24.9%, working-capital lending 8.94% and consumer credit 5.75%.

The banking system’s capital-adequacy ratio stood at 23.74% in May. Non-performing loans represented 2.17% of total lending on a gross basis and 0.84% on a net basis after provisions.

The banking sector retains substantial capital and liquidity buffers. A prolonged period of elevated rates could nevertheless increase borrower costs and gradually reduce demand for new credit.

As International Investment experts report, Bank Indonesia’s policy mix can smooth short-term exchange-rate volatility but cannot guarantee a sustained appreciation of the rupiah. Intervention may reduce reserves, higher interest rates increase borrowing costs, and currency-hedging incentives remain effective only while foreign investors retain an appetite for Indonesian assets. Longer-term stability will depend on the balance of payments, export receipts and monetary-policy consistency. The leadership transition also raises the importance of transparency: markets require clear decisions and evidence that the central bank can act predictably during a period of currency pressure.

Frequently Asked Questions

Why has the Indonesian rupiah weakened?

Pressure reflects capital outflows from emerging markets, domestic demand for dollars, external-debt payments, fuel imports and greater caution among investors.

How is the central bank supporting the rupiah?

It sells foreign currency, purchases rupiah, uses domestic and offshore non-deliverable forwards and offers incentives intended to attract foreign portfolio investment.

What is Indonesia’s benchmark interest rate?

The benchmark rate is 5.75%. It was increased by a total of one percentage point between May and June 2026.

What is a non-deliverable forward?

It is an agreement fixing a future exchange rate without physical delivery of the underlying currency. The parties settle the difference between the agreed and reference rates.

Are Indonesia’s foreign-exchange reserves sufficient?

Reserves of $145.6 billion cover about 5.5 months of imports. This exceeds the international benchmark, although prolonged intervention could gradually reduce the buffer.

Who currently leads Bank Indonesia?

Destry Damayanti became acting governor following Perry Warjiyo’s voluntary resignation.