BI Governor Explains Why the Benchmark Rate Remains at 5.75%

Bank Indonesia Holds Benchmark Rate at 5.75% to Protect Growth Momentum

Tempatdonasi.com – Bank Indonesia has kept its benchmark BI-Rate at 5.75 percent for September 2026, with Governor Destry Damayanti emphasizing that additional interest-rate increases could place a noticeable drag on national economic growth.

Speaking during a working meeting with the House of Representatives’ Commission XI at the parliamentary complex in Jakarta on Monday, September 28, 2026, Destry outlined the central bank’s calculation of how tighter monetary policy affects the economy. A rise of 25 basis points, equal to 0.25 percentage point, is expected to trim growth by 0.1 percentage point.

If the BI-Rate rises by 25 basis points, or 0.25 percentage point, economic growth will decline by 0.1 percentage point.

The assessment helps explain why the central bank chose not to lift its policy rate again this month. Interest rates influence borrowing costs for households, businesses, and financial institutions. When rates climb, credit can become more expensive, potentially affecting spending, investment, and other activity that supports economic expansion.

Earlier Rate Increases Still Shape the Outlook

The decision follows a combined 100-basis-point increase implemented in May and June. Destry said those earlier moves must be considered when weighing whether more tightening is needed. Relying only on higher interest rates, she warned, would create a greater risk of a substantial slowdown in economic growth.

We raised the rate by 100 basis points in May and June. So, if we rely solely on interest rate increases, our economic growth would inevitably decline significantly.

For policymakers, the challenge is to balance several goals at once. A benchmark rate can be used to help manage price pressures and support financial stability, but it can also affect the pace of economic activity. Bank Indonesia’s September stance indicates that the institution sees a need to account for the effect of the previous rate increases before adding further pressure through another adjustment.

Destry said Indonesia’s economy is operating below its potential level. That condition, she explained, leaves room for the economy to grow further without immediately triggering inflationary pressure. In practical terms, the central bank sees space for stronger activity while maintaining vigilance over prices.

Inflation Remains the Main Monetary Policy Reference

Even while stressing the importance of protecting growth, Destry made clear that inflation remains the core reference point for Bank Indonesia’s monetary policy. The central bank is not treating growth and price stability as separate concerns; rather, it is weighing how its decisions can contain inflation without unnecessarily weakening the economy.

This balancing act is especially significant after the rate increases earlier in the year. Monetary policy changes do not operate in isolation, and their effects can extend through lending conditions, business decisions, household finances, and capital flows. Maintaining the BI-Rate at 5.75 percent allows the central bank to preserve its existing policy setting while monitoring the impact of the adjustments already made in May and June.

The governor’s remarks also underline that a rate decision is not simply a choice between raising or lowering borrowing costs. The magnitude matters. Bank Indonesia’s estimate that every 25-basis-point increase could reduce growth by 0.1 percentage point provides a specific measure of the trade-off being considered.

Alternative Tools Target Foreign Capital Flows

Bank Indonesia is also pursuing measures beyond the policy rate to encourage foreign capital to enter domestic financial markets. Destry said the central bank is exploring instruments that can support capital inflows without requiring a further increase in interest rates.

One measure involves incentives aimed at reducing hedging costs for foreign investors. Hedging is used to manage exposure to changes in currency values and other financial risks. Lowering those costs can make investment in domestic markets more attractive to overseas participants while avoiding an additional broad-based rate move.

The policy has drawn US$6 billion into Indonesia’s domestic financial markets since it was introduced one month ago, Destry said. The figure suggests that the central bank sees value in using targeted incentives alongside its benchmark-rate policy.

Such an approach gives Bank Indonesia another way to address conditions in financial markets. Instead of depending solely on a higher BI-Rate to support foreign investor interest, the institution can seek to reduce specific barriers faced by investors. This may help bring capital into the market while limiting the potential effect that another rate increase could have on domestic growth.

What the 5.75% Decision Signals

The September decision leaves the benchmark rate unchanged at 5.75 percent after the substantial 100-basis-point rise delivered across May and June. It signals that Bank Indonesia is seeking to maintain a cautious stance on inflation while recognizing the economic cost that could come with additional monetary tightening.

For businesses and consumers, the decision means there was no new benchmark-rate increase in September. For investors, it also highlights the central bank’s willingness to use measures such as hedging-cost incentives as part of its broader effort to support capital flows.

Bank Indonesia will continue to face the task of keeping inflation under control while assessing whether the economy’s remaining capacity can support stronger growth. Destry’s explanation to lawmakers placed that trade-off at the center of the latest policy decision: further rate increases may offer one policy lever, but they also carry a measurable cost for economic expansion.