In a move aimed at bolstering the stability of the financial system, Bank Indonesia (BI) has announced an enhancement to its mechanism for controlling bank interest rates through a new system that relies on the difference between the BI-Rate and bank interest rates. This announcement comes after a 50 basis point increase in the benchmark interest rate, as the bank seeks to ensure that banking interest rates remain under control.
During a discussion with the media in Makassar, the Director of the Macro Policy Department at Bank Indonesia, Daha B. Kwanthan, explained that the new system will encourage banks to reassess their interest rates. He confirmed that banks that can maintain a certain spread with the BI-Rate will be able to benefit from new incentives.
Details of the New System
Kwanthan indicated that the new system, which will be implemented in August 2026, is based on the difference between the BI-Rate and bank interest rates. Banks that maintain a spread of less than 3% will be eligible for incentives of up to 100 basis points. Meanwhile, a spread between 3% and 6% will receive incentives of up to 40 basis points, and a spread between 6% and 10% will receive 10 basis points. Any spread exceeding 10% will not qualify for incentives.
The bank has also introduced a new mechanism to support funding channels by adding unconventional financing, allowing banks to use their holdings of securities as part of financing for small and medium-sized enterprises.
Background & Context
This step is part of Bank Indonesia's efforts to enhance the stability of the national economy, especially after the country experienced several interest rate cuts during 2025, where the benchmark interest rate was reduced five times for a total of 125 basis points. This led to a year-on-year increase in bank credit of 9.98% in April 2026, reflecting an improvement in economic activity.
Historically, Bank Indonesia has adopted flexible monetary policies aimed at supporting economic growth; however, global and local economic challenges require a swift and effective response to maintain price stability and growth.
Impact & Consequences
This move is crucial in the context of maintaining interest rate stability, as raising the BI-Rate may lead to increased borrowing costs, affecting businesses and individuals. However, by strengthening the price control mechanism, Bank Indonesia hopes to mitigate the negative impact on economic growth.
These policies may also influence foreign investment flows, as investors seek to understand how interest rates affect potential returns. In this context, investors are expected to closely monitor how banks respond to these changes.
Regional Significance
The monetary policies of Bank Indonesia serve as a model for the Arab region, where many Arab countries face similar challenges in managing interest rates and economic growth. Strengthening interest rate control mechanisms can assist Arab nations in achieving greater economic stability.
In conclusion, this development represents a positive step towards achieving greater financial stability in Indonesia and reflects the central bank's commitment to fostering sustainable economic growth.