Bank Indonesia holds at 5.75% in Destry Damayanti's first meeting

A week after the Federal Reserve raised its funds target by 25 basis points to a range of 3.75% to 4.00%, Governor Destry Damayanti held Bank Indonesia's 7-day reverse-repurchase rate at 5.75% in her first meeting as governor, the third straight pause after 100 basis points of increases in May and June. She raised the discounts on hedges that foreign investors use to hold rupiah assets, to as much as 25% on conventional swaps and 30% on domestic non-deliverable forwards, contracts that settle the currency's move in cash.

The rupiah closed Wednesday at 17,818 per dollar, 0.37% stronger than Tuesday. It had moved back toward 17,900 earlier in the week. Damayanti, confirmed this month as the first woman to lead the bank, had already chaired August's hold as interim chief. "We want to support economic growth because the momentum is there," she said. "While stability remains our focus now, we must also open room for the economy to move faster." August inflation was 3.19%, inside the 2.5% objective plus or minus 1 percentage point, and the bank kept its 2026 growth forecast at 4.9% to 5.7%. Twenty-nine of 32 economists had expected the hold. Fakhrul Fulvian of Trimegah Securities said it was appropriate, arguing that not all pressure on the rupiah should be met with a more expensive policy rate for the whole economy.

The dedicated Indonesia equity fund, iShares MSCI Indonesia ETF CEIDO, is off 33.7% year to date through Tuesday's close at $12.16 and carries etf.net's C among EM single-country funds. Banks make up half the portfolio, led by Bank Central Asia.

Wednesday's choice leaves those banks' policy rate unchanged and leans on cheaper hedges to hold foreign capital. U.S.-listed shares have not had a session to trade the decision.

The swap discount had been a flat 12.5% on every tenor. It is now 15% at three months, 20% at six months, and 25% at 12 months. The DNDF discount rises from 15% to 25% at six months and 30% at 12 months. The terms apply to portfolio inflows, foreign bank loans, and direct investment. "These incentive policies also follow a 'higher for longer' approach; the longer investors keep their funds here, the higher the premium discount," Damayanti said.

Faisal Rachman of Bank Permata still expects a 25-basis-point increase in the fourth quarter, one named path if the cheaper hedges do not keep the rupiah stable before the next Board of Governors meeting on October 20-21.