Indonesia Keeps Benchmark Rate at 5.75% Amid Rising Global Borrowing Costs

Bank Indonesia’s governing board chose to keep the benchmark interest rate at 5.75% during its September meeting, even as the Federal Reserve raised its target to 4%, the ECB lifted its deposit rate to 2.5% and the Bank of Japan increased its policy rate to 1.25%. The decision reflects worries that further tightening would raise financing costs for businesses and consumers, potentially undermining President Prabowo Subianto’s goal of 6-8% growth driven by domestic consumption.

Yet holding the rate narrows the yield advantage of Indonesian assets; the 10-year government bond yielded about 7.1% versus roughly 4.9% for comparable U.S. Treasuries, a spread that may prove insufficient to keep capital inflows. A weaker rupiah and higher bond yields could compel Bank Indonesia to raise rates more aggressively later. Meanwhile, Finance Minister Suahasil Nazara must contend with a rising debt burden—public debt sits near 40% of GDP and interest outlays reached roughly Rp 394 trillion, surpassing the entire 2026 health budget. The fiscal strain underscores the need for smarter debt management and innovative financing solutions.