JAKARTA — Bank Indonesia is intensifying its defence of the rupiah without relying exclusively on another interest-rate increase.

A Bloomberg market snapshot placed the currency at approximately Rp18,083 per US dollar, 0.41% weaker than the previous close of Rp18,009. The rupiah traded between Rp18,063 and Rp18,118 during the recorded session.

Erwin Gunawan Hutapea, Bank Indonesia’s senior executive director and head of monetary management and securities assets, said the central bank would sharpen its broader policy mix.

The approach combines foreign-exchange intervention, rupiah securities, hedging facilities, banking-liquidity management, macroprudential incentives and payment-system development.

The strategy reflects a difficult policy objective: stabilising the currency while avoiding monetary conditions that unnecessarily restrict domestic credit and economic growth.

The Central Bank Chose a Rate Hold

Bank Indonesia kept its policy rate at 5.75% during the July 21–22 Board of Governors Meeting. The Deposit Facility rate remained at 4.75%, while the Lending Facility rate was maintained at 6.50%.

The decision followed 100 basis points of cumulative tightening since May. Instead of raising rates again, BI introduced and expanded non-rate measures designed to attract portfolio inflows and support the currency.

A policy-rate increase can support a currency by improving the return available on domestic assets. It can also raise borrowing costs for companies and households.

The July decision therefore represented an attempt to obtain currency support through more targeted channels without imposing the full economic cost of another broad rate increase.

Intervention Operates Across Three FX Markets

The first part of the strategy is direct foreign-exchange intervention.

BI operates in the domestic spot market, where dollars and rupiah are exchanged for immediate settlement. It also uses Domestic Non-Deliverable Forwards, or DNDFs, which allow market participants to manage future currency exposure with settlement in rupiah.

The central bank also intervenes in offshore Non-Deliverable Forward markets. These markets are important because expectations for the rupiah are formed outside Indonesia as well as within the domestic banking system.

BI’s official July policy statement confirmed continued intervention through offshore NDFs and domestic spot and DNDF transactions.

The objective is not necessarily to defend a permanently fixed exchange rate. The instruments are intended to smooth excessive volatility, maintain orderly price discovery and reduce the risk that speculative pressure becomes self-reinforcing.

SRBI Creates a Return Incentive for Foreign Capital

Bank Indonesia Rupiah Securities, known as SRBI, form the second layer of the currency strategy.

The central bank can adjust the instrument’s issuance and yield structure to make rupiah assets more attractive to portfolio investors. Foreign buyers generally need rupiah to purchase the securities, creating currency demand.

Nonresident SRBI holdings increased from Rp238.09 trillion on June 15 to Rp288.65 trillion on July 20. Foreign investors held approximately 27.11% of the outstanding amount.

The mechanism also creates a policy trade-off.

Large SRBI issuance absorbs liquidity from the financial system. Although this can support the rupiah, excessive absorption could tighten interbank funding and raise the central bank’s monetary-operation costs.

BI has therefore indicated that future issuance will be calibrated according to liquidity-management needs and the objective of sustaining foreign inflows.

Hedging Incentives Address Currency Risk

Yield alone is not enough to attract global investors.

A foreign institution buying Indonesian securities must also consider the possibility that rupiah depreciation will offset the interest earned. The availability and price of currency hedging can therefore be as important as the headline yield.

BI provides swap and DNDF facilities that allow banks and investors to manage that exposure. Recent measures have expanded access and reduced part of the cost associated with portfolio-investment hedging.

The combination of competitive SRBI returns and lower hedging costs is intended to improve the risk-adjusted attractiveness of Indonesian assets.

This approach can be more targeted than a general rate increase because it directly addresses the calculations made by foreign portfolio managers.

Liquidity Must Be Returned to the Banking System

Foreign-exchange intervention and SRBI issuance can reduce the amount of rupiah available in the financial system.

Bank Indonesia is therefore strengthening its liquidity operations to prevent shortages in particular banks or money-market segments.

Repo facilities and other monetary instruments can inject funding when liquidity becomes unevenly distributed. This helps prevent currency stabilisation from causing excessive increases in interbank rates or disrupting lending.

BI describes its monetary policy as pro-stability, while maintaining accommodative macroprudential and payment-system policies to support growth.

The separation allows the central bank to tighten the channels most closely linked to exchange-rate pressure while preserving support for productive financing.

KLM Supports Priority-Sector Lending

The Macroprudential Liquidity Incentive Policy, or KLM, is an important part of the pro-growth side of the framework.

Banks receive liquidity incentives when they expand financing to designated priority sectors or become more responsive in reducing new lending rates.

The covered areas include agriculture, manufacturing and downstream industries, services and the creative economy, construction and housing, micro and small enterprises, cooperatives, financial inclusion and sustainable sectors.

Banks had received Rp431.9 trillion in KLM incentives by the first week of July. Of that amount, Rp369 trillion was allocated through the lending channel and Rp62.9 trillion through the interest-rate channel.

The policy acts as a counterweight to currency defence.

While SRBI and FX operations can absorb liquidity or increase financial-market returns, KLM rewards banks that continue directing funds toward economic activity.

Payment Digitalisation Supports the Longer-Term Growth Agenda

Bank Indonesia is also maintaining its programme of payment-system digitalisation.

Mobile-application and internet transactions expanded by 31.39% and 16.88% year on year, respectively, during the second quarter of 2026. QRIS transactions increased by more than 100%.

Digital payments do not directly determine the rupiah’s value in the short term. Their contribution is structural.

More efficient payment infrastructure can lower transaction costs, widen access to formal finance and support the expansion of digital businesses.

This helps demonstrate why BI’s policy mix extends beyond interest rates and foreign exchange. The central bank is attempting to manage immediate financial volatility while continuing to develop the infrastructure needed for longer-term economic growth.

Policy Credibility Is Part of the Currency Toolkit

The latest commitment comes during an unexpected leadership transition.

Perry Warjiyo resigned as governor on July 27, and Senior Deputy Governor Destry Damayanti assumed the role on an acting basis. She has pledged continuity in exchange-rate stabilisation and monetary policy.

The transition means that market confidence will depend not only on the volume of intervention.

Investors will also assess policy consistency, central-bank independence, coordination with fiscal authorities and the clarity of communication from BI’s leadership.

S&P Global Ratings said the personnel change did not directly alter Indonesia’s sovereign rating, but it increased uncertainty surrounding future policy responses.

A credible central bank can sometimes stabilise expectations before it spends large amounts of reserves. If communication loses credibility, even substantial intervention may have only a temporary effect.

How Success Should Be Measured

A single stronger trading session would not prove that the strategy has succeeded.

The more meaningful indicators are lower exchange-rate volatility, sustained portfolio inflows, stable foreign-exchange reserves and continued investor participation in SRBI and government bonds.

Domestically, the central bank must also monitor interbank liquidity, credit growth and inflation.

Bank Indonesia aims to keep inflation within the government’s 2.5% plus-or-minus 1% target in 2026 and 2027.

The rupiah remains vulnerable to global interest rates, oil prices, geopolitical risk and domestic policy uncertainty. BI cannot eliminate those forces.

Its multi-instrument strategy can, however, reduce disorderly market movements, improve the return available to foreign investors and protect domestic credit from the full impact of currency tightening.

The current policy direction is therefore not a choice between stability and growth. It is an attempt to allocate different instruments to each objective.

Disclaimer: This article is intended solely for informational and educational purposes. It does not constitute investment, foreign-exchange or financial advice.