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Beyond Interest Rates: BI's Integrated Policy Mix Drives Growth
Bank Indonesia supplements its accommodative interest rate with macroprudential incentives and digital payment expansion to catalyze lending and accelerate economic growth.
Jakarta - Recognizing that interest rate adjustments alone are insufficient in complex economic times, Bank Indonesia is deploying a comprehensive and integrated policy framework. While holding the BI-Rate steady at 4.75%, the central bank is actively strengthening its macroprudential policies and modernizing the national payment system. This three-pronged strategy—encompassing monetary, macroprudential, and payment system policies—is deliberately designed to work in concert to lower market interest rates, increase system-wide liquidity, and boost credit and financing growth to achieve higher economic expansion.
A key instrument in this mix is the Macroprudential Liquidity Incentive (KLM) policy. This approach provides incentives to banks to channel more loans into priority sectors or under specific conditions, effectively complementing the low benchmark interest rate. By using macroprudential tools, BI can target credit stimulation more precisely, addressing specific bottlenecks in the economy without resorting to broader rate cuts that might impact currency stability.
Simultaneously, BI is executing a significant expansion of Rupiah liquidity within the financial system. The central bank has systematically reduced its holdings of short-term Bank Indonesia securities (SRBI), with the position declining from Rp916.97 trillion at the start of 2025 to Rp707.05 trillion by late October. This deliberate withdrawal of high-yielding central bank paper pushes liquidity toward banks, encouraging them to lend to the real economy rather than parking funds safely with BI.
In an exceptional demonstration of synergy with the government, BI has also become a major buyer of government bonds (SBN) in the secondary market. By October 21, 2025, these purchases had reached Rp268.36 trillion, including a significant debt switching program with the government valued at Rp199.45 trillion. This policy serves multiple goals: it supports government financing, stabilizes the bond market, and further injects liquidity into the financial system, all while being conducted through a measured and transparent market mechanism.
The third pillar of the strategy focuses on the future of finance: the digital payment system. BI is directing efforts to widen the acceptance of digital payments, strengthen the industry's structure, and enhance the resilience of payment infrastructure. A more efficient, inclusive, and robust digital payment ecosystem reduces transaction costs, increases financial inclusion, and ultimately supports higher consumption and economic activity, creating a positive feedback loop for growth.
This integrated approach is set against a backdrop of moderate but steady domestic economic performance. Growth in the third quarter of 2025 was supported by exports and government spending, though private domestic demand requires further strengthening. By lowering the cost of funding for banks and providing incentives to lend, BI's policies aim to directly stimulate the investment and consumption needed to close this demand gap.
The effectiveness of this policy blend is already visible in certain indicators. The aggressive 150-basis-point reduction in the BI-Rate since September 2024 has brought borrowing costs to their lowest level since 2022. When combined with the liquidity injections from SRBI reductions and SBN purchases, these actions create powerful downward pressure on commercial bank lending rates, making financing more accessible for businesses and households.
Bank Indonesia's forward guidance indicates that the room for future BI-Rate adjustments will be carefully evaluated based on the transmission effectiveness of this current policy mix, alongside inflation trends and Rupiah stability. The central bank's current trajectory demonstrates a sophisticated move beyond conventional monetary policy, leveraging all tools at its disposal to engineer a financial environment conducive to sustainable and resilient economic growth.
(Bassam Raza)
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