Bank Indonesia Keeps Intervention Strategy Unchanged as Rupiah Weakens

Central bank monitors currency swings

Destry said daily supply and demand continued to shape the rupiah's movements. Speaking in Jakarta after the Danantara Technology Innovation Investment Forum (DTIIF) 2026, she said the central bank was watching the currency and examining what was driving its fluctuations.

"Yes, we (BI) remain in the market. It depends on the day's supply and demand dynamics; we are definitely keeping a close watch on its movements," she said.

Asked about possible changes to intervention, Destry said none were planned. She characterized the fluctuations as standard market volatility that Bank Indonesia could continue to monitor.

The latest decline followed an earlier weakening reported by the central bank. On October 20, the rupiah stood at Rp17,985 per dollar, down 0.61% on a point-to-point basis from the end of September. The currency had appreciated through mid-September.

Middle East conflict lifts oil prices

Xinhua reported that fears about the widening Middle East conflict pushed Brent crude to its highest price since late April. December Brent futures settled at $116.72 a barrel on Saturday, October 24, a gain of 3.14%. West Texas Intermediate futures for December settled 3.82% higher at $103.27 a barrel.

According to Jakarta Globe, Yemen's Iran-aligned Houthi group continued attacks over the weekend and claimed responsibility for strikes targeting Saudi airports and oil facilities. As of October 26, US President Donald Trump had also raised the prospect of renewed hostilities, saying it was time to decide whether to reach a deal with Tehran or "end it altogether."

Ibrahim Assuaibi, director of Traze Andalan Futures, said on October 26 that concerns about the government's finances were weighing on the rupiah as oil prices climbed. Indonesia remains a net oil importer, he noted. He said more expensive oil could widen the state budget deficit through higher import costs, energy subsidies and compensation payments to Pertamina.

Fair Observer reported that Indonesia uses about 1.6 million barrels of oil daily but produces only around 600,000, importing the remainder. The 2026 state budget assumed an oil price of about $70 a barrel. Finance Ministry estimates cited by the outlet suggest that each $1 increase in oil prices adds roughly Rp6.8 trillion, or about $400 million, to the budget deficit.

Equities face a separate setback

Indonesia's stock market had also suffered a sharp decline earlier in the month. Fair Observer reported that MSCI warned on October 16 that it might reclassify Indonesia directly from emerging market to standalone status, citing suspected coordinated trading and weak enforcement of reforms.

The main stock index dropped 11.6% that day, its steepest one-day loss in almost 30 years. Its year-to-date decline was close to 40%.

October policy decisions and reserve position

At its October 20-21 meeting, Bank Indonesia kept the benchmark BI-Rate at 5.75% and the Lending Facility rate at 6.50%, while increasing the Deposit Facility rate to 5.00%. The bank said stronger hedging incentives reinforced the decision, with the aim of drawing foreign capital inflows and maintaining rupiah stability.

For Domestic Non-Deliverable Forward (DNDF) hedging instruments with the central bank, the premium reduction increased to 40% from 25% for six-month contracts and to 45% from 30% for 12-month contracts. Bank Indonesia said its policies had attracted $9.9 billion in foreign capital inflows by October 20 since the incentives began in June 2026.

The bank described Indonesia's international reserves as solid at $146.3 billion at the end of September. That amount covered 5.3 months of imports, or 5.2 months of imports plus government external debt servicing, exceeding the international adequacy benchmark of roughly three months of imports.

The October policy package also included scheduled reductions in bank reserve requirements. For conventional commercial banks, the ratio will fall from 9% to 8% on November 1, 2026, then to 7% on December 1. For sharia commercial banks and sharia business units, it will fall from 7.5% to 6.5% and then to 5.5% on the same dates.