The Dual Benchmark Phenomenon: BI-Rate and SBN Yield

Maintaining Rates Amidst Currency Volatility

Bank Indonesia (BI) has chosen to maintain its benchmark interest rate (BI-Rate) at 4.75% as of end-2025, despite growing economic pressures. This decision comes as the Indonesian Rupiah faces significant depreciation pressure against the US Dollar, with rates nearing the psychological level of Rp17,000. The Rupiah exchange rate stood at Rp16,865.91 on December 31, 2025, and slightly strengthened to Rp16,803.6 by January 2, 2026.

The Challenge of Rate Transmission

The maintenance of BI-Rate at a relatively high level contrasts with the Rupiah's continued depreciation. Moreover, banks seem to be less responsive to BI's monetary policy adjustments. The reduction in BI-Rate by 125 basis points has not been matched by corresponding decreases in deposit and lending rates. One-month deposit rates dropped by only 56 basis points, from 4.81% to 4.25% between early 2025 and October 2025. Lending rates decreased even more sluggishly, falling by just 20 basis points from 9.20% to 9% over the same period.

SBN Yield: The Alternative Benchmark

The slow transmission of monetary policy to banking rates has raised questions about the effectiveness of BI-Rate as the primary benchmark. The yield on Government Securities (SBN) has emerged as a significant alternative reference point. With SBN yields at 6.9% compared to deposit rates at 4.25%, banks are likely influenced by this higher-yielding alternative when setting their deposit and lending rates. This phenomenon suggests that SBN yield has become a 'twin' to BI-Rate in the banking sector's decision-making process.

Implications for Credit Growth

The lack of effective transmission of monetary policy to lending rates has contributed to sluggish credit growth. As of November 2025, credit growth stood at 7.74% YoY, falling short of the government and BI's target range of 8-11%. Various sectors, including trade, industry, and mining, have contributed to this slowdown. Working capital credit and consumer credit growth have also decelerated, recording 3.37% YoY and 7.42% YoY, respectively.

Addressing the Liquidity and Credit Growth Conundrum

Despite the sluggish credit growth, the banking system is characterized by high liquidity, amounting to Rp866 trillion. This liquidity includes Rp200 trillion from government funds, Rp274 trillion from BI's SBN purchases, and Rp392 trillion from BI's liquidity incentives. To stimulate credit growth, BI has introduced Macroprudential Liquidity Incentives (KLM), allowing banks to reduce their reserve requirements by up to 5% based on their lending performance. This policy aims to encourage banks to lower their lending rates to around 7%.

Conclusion

The current financial landscape in Indonesia presents a complex scenario where the BI-Rate and SBN yield are operating as dual benchmarks. The effectiveness of monetary policy is being challenged by the banking sector's response to these rates. To achieve the desired economic stimulation, particularly in credit growth, coordinated efforts between BI and the government are essential. These efforts should focus on both supply-side banking incentives and demand-side real sector stimulus.