Indonesia Daily Focus August 20, 2026

BI still on hold
BI held the policy rate at 5.75% in Aug-26, in line with our and market expectations, as the Rupiah appreciated by 0.8% MoM to IDR17,855/USD and foreign portfolio inflows reached USD1.8bn, led by SRBI and SBN. The improving market backdrop provides BI with greater room to maintain its current rate stance despite Middle East uncertainty, while gradually shifting its policy mix toward targeted Rupiah stabilization and pro-growth macroprudential measures.

BI goes all-out on Rupiah stability, new incentives introduced
BI strengthened its Rupiah stabilization toolkit through: i) expanding the 12.5% FX swap hedging premium incentive beyond portfolio inflows to banks’ external borrowing and FDI from Sep-26, with rollover flexibility within the remaining contract period of up to three years; and ii) introducing a 15% DNDF incentive, alongside 10% FX swap and DNDF incentives under LCT. The broader incentive framework allows BI to deepen FX liquidity and attract more diversified foreign flows, reducing reliance on higher yields to stabilize the Rupiah.

…while creating more room to support domestic growth
On the growth side, BI reiterated its intention to limit further increases in SRBI yields, while credit growth accelerated to 13.6% YoY in Aug-26 from 12.7% YoY in Jun-26, signaling stronger emphasis on banking intermediation. Banks’ average SRBI holdings have declined to IDR618tr over the past two months from IDR648tr in the first five months of 2026, suggesting BI is increasingly shifting Rupiah stabilization toward foreign participation while freeing domestic liquidity for credit creation and supporting growth.

Our view: another 25bps hike remains possible
We concur that room for another 25bps rate hike remains, particularly if an FFR hike stays on the table and strengthens the DXY, although the urgency is more limited as BI increasingly relies on non-rate instruments for Rupiah stabilization. We see another hike becoming more relevant if the Rupiah weakens beyond IDR18,000/USD and inflation returns above 3.5% through YE2026, particularly amid upside risks from El Niño-related food prices and higher global oil prices.