BI raises its overnight deposit rate and releases bank reserves

Daily IntELigence Brief | 22 October 2026

Finance / Banking: Policy decision — Bank Indonesia Board of Governors Meeting, 20–21 October 2026 (News Release No. 28/233/DKom)

BI raises its overnight deposit rate and releases bank reserves

Implications: High — banks, borrowers and cross-border investors. Banks will earn more on overnight funds placed with Bank Indonesia, while phased reserve cuts release capacity for lending; cheaper qualifying currency hedges may affect foreign funding economics.

Summary: On 21 October, Bank Indonesia (BI) kept its benchmark rate at 5.75% but raised the overnight Deposit Facility rate by 25 basis points to 5.00% and announced a two-percentage-point reduction in banks’ reserve requirements by December. It also increased discounts on certain BI currency hedges for foreign funding, seeking to support the rupiah while preserving credit supply. BI’s 21 October decision; Reuters.

Context: The 19 October brief covered selling in Indonesian shares, bonds and the rupiah following MSCI’s proposed market reclassification. Reuters reported that the currency remained near an all-time low as BI made this decision; MSCI has not made a final classification decision. Reuters.

What changed. BI will cut conventional banks’ average rupiah reserve requirement from 9% to 8% on 1 November and to 7% on 1 December; the equivalent sharia requirement falls from 7.5% to 6.5% and then 5.5%. From 1 December, BI will also reduce the maximum Macroprudential Liquidity Incentive from 6% to 5%. For BI Domestic Non-Deliverable Forward hedges backed by qualifying foreign funding, it increased the premium discount from 25% to 40% for six months and from 30% to 45% for twelve months; the release gives no separate start date for those discount changes. The Lending Facility rate remains 6.50%. BI.

Why it matters. The higher Deposit Facility rate increases banks’ return on cash parked overnight at BI and may put upward pressure on very short-term rupiah funding rates. Reserve cuts release funds otherwise held at BI, though the smaller liquidity incentive partly offsets that benefit; neither measure guarantees cheaper loans. The larger hedge discounts could improve the cost of eligible portfolio inflows, foreign bank borrowing and direct investment, so cross-border financing teams should revisit hedge quotes rather than assume the benchmark rate alone captures the change. These are commercial implications, not measured effects. BI; Dow Jones.

What to watch. The 1 November and 1 December reserve changes, banks’ lending and funding rates, take-up of the revised BI hedges, and the rupiah’s response. BI.

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Image Illustration Credit: AI-generated illustration of Bank Indonesia, rupiah banknotes and Jakarta’s financial district, representing monetary policy and banking liquidity.”