BI Holds Its Policy Rate: Why Raise Its Deposit Facility Rate?

Bank Indonesia kept the BI-Rate at 5.75% while raising its Deposit Facility rate to 5% at the October 20 and 21, 2026 Board of Governors meeting. The Lending Facility rate remained at 6.50%. The decision changes the return on banks’ placements at BI even though the main policy rate is unchanged. Source: October policy decision.

The increase applies to a facility used by banks. Retail customers do not automatically receive a 5% savings or term-deposit rate. The effect reaches households through banks’ funding decisions, liquidity management, and product pricing.

The same policy package schedules an easing of reserve requirements. The measures operate through two dimensions: the price of short-term placements and the amount banks must maintain as reserves. Their effects need to be assessed through interbank rates, customer offers, and the use of liquidity after implementation.

Three Interest Rates with Different Roles

The BI-Rate signals the direction of monetary policy. The Deposit Facility provides eligible banks with a placement option, while the Lending Facility supplies rupiah funding from BI under applicable conditions.

The monthly comparison shows that BI did not move all its instruments by the same amount.

The baseline comes from the September policy decision. The Deposit Facility increase is 25 basis points, equivalent to 0.25 percentage points.

Interest-rate decisions from BI’s October 20 and 21, 2026 meeting. Source: Bank Indonesia, October 21, 2026 release. 

The gap between the BI-Rate and Deposit Facility narrowed from 100 to 75 basis points. The full corridor between the deposit and lending facilities also narrowed from 175 to 150 basis points. This arithmetic identifies a change in short-term rate structure that is missed when readers focus solely on the BI-Rate.

How Does the Deposit Facility Affect Banks’ Choices?

Payments, deposit receipts, and loan disbursements change a bank’s liquidity position throughout the day. Some banks may end up with surplus funds while others need financing to settle transactions.

A bank with excess funds compares placement options according to maturity, access, counterparty risk, and upcoming payment needs. The Deposit Facility is one option within that assessment.

BI’s Standing Facilities rules provide for conventional facilities with a one-business-day, or overnight, term. An annualized interest rate does not mean a bank earns that percentage in a single night.

A higher facility rate improves the relative attractiveness of placing funds at BI. Economically, banks have a different reference when deciding what return to accept from interbank borrowers. Actual transactions can still differ because of access, timing, and each participant’s position.

Monetary operations aim to guide overnight interbank rates around the policy rate. BI explains the mechanism in its monetary operations overview. Interbank-rate developments are therefore a more relevant initial test than immediately expecting every retail deposit rate to change.

What Does a 25-Basis-Point Increase Mean in Rupiah?

A simple example helps illustrate the scale. Assume a bank has Rp1 trillion and is comparing only the difference between annual rates of 4.75% and 5%.

Interest-rate difference = 5% − 4.75% = 0.25%

Illustrative annualized difference = Rp1 trillion × 0.25% = Rp2.5 billion

Rp2.5 billion is an annualized comparison assuming a constant balance and rate. It is not actual overnight income, a bank-profit forecast, or a return promised to customers. Facility settlements follow the relevant tenor and technical rules.

The example shows why a small percentage change can matter on a large balance sheet. Its effect on lending decisions still requires comparison with borrower risk, capital usage, operating expenses, and liquidity requirements.

Why Raise a Facility Rate While Cutting Reserve Requirements?

Reserve requirements determine the balances banks must maintain at BI. A lower ratio can provide greater funding flexibility, while the Deposit Facility changes the price of one possible placement for that funding.

BI scheduled conventional-bank reserve requirements to fall from 9% to 8% on November 1 and to 7% on December 1, 2026. The maximum KLM liquidity incentive also moves from 6% to 5% in December. Details were confirmed in ANTARA’s report on BI’s liquidity measures.

Reserve-requirement and KLM adjustments announced on October 21, 2026. Source: Bank Indonesia. 

KLM incentives reduce reserve obligations under specified conditions. BI describes the mechanism in its KLM implementation rules. Changes in the incentive ceiling therefore affect each bank’s net benefit.

The gross reserve reduction cannot simply be multiplied by all industry deposits and labeled new lending. Banks must still meet payment needs, manage risk, and identify creditworthy demand.

Four Transmission Channels for Customers and Investors

BI’s decisions pass through bank balance sheets and asset prices. The speed and size of the effect differ across channels.

A. Savings and Term-Deposit Rates

Banks seeking additional funding may have stronger reasons to adjust their deposit offers. Banks already holding excess funds can make different decisions.

Customers should assess effective rates, maturities, balance requirements, and product conditions. A central-bank facility rate does not become an automatic minimum for all retail deposits.

B. Lending Rates and Access to Credit

Loan pricing includes funding costs, expected credit losses, capital usage, and operating expenses. A change in one component may not be passed through fully to borrowers.

Contracts also determine repricing dates. Fixed-rate loans and loans reviewed periodically can respond at different times, while banks continue assessing prospective borrowers’ ability to repay.

C. The Rupiah and Foreign-Investor Decisions

Returns on rupiah instruments are one consideration for foreign investors. They also assess currency movements, hedging costs, and alternatives in other countries.

Foreign investors do not automatically receive the Deposit Facility rate. The currency effect operates through transmission to money markets and instruments they can actually access. A single day’s exchange-rate movement cannot establish whether the entire package succeeded or failed.

D. Bonds, Equities, and Crypto

Bond prices respond to changes in yields across maturities. An unchanged BI-Rate does not fix the entire yield curve because inflation expectations and global rates can still move.

Equities receive the effect through financing costs and discount rates. The connection to crypto is less direct: greater banking liquidity does not establish that those funds will be used to buy digital assets.

What Evidence Should Follow the Announcement?

Readers can monitor the following developments to assess transmission:

• Overnight interbank rates relative to the facility corridor.

• Actual deposit offers and rates on new loans.

• Reserve-requirement and KLM implementation.

• Realized lending, borrower quality, and use of credit facilities.

• The rupiah and flows into different financial instruments.

The Deposit Facility increase shows why policy cannot be read from the BI-Rate alone. The next question is whether short-term rates become better controlled and liquidity flexibility supports sound financing. Answering it requires post-implementation evidence rather than the instrument announcement alone.

Disclaimer

This article provides general information and analysis, not deposit, borrowing, or investment recommendations. Calculations are illustrative. Product rates, facility terms, and market conditions may change.