BI's Growing Role in APBN Financing Raises Independence Concerns

Aggressive Bond Absorption

Bank Indonesia (BI) has significantly increased its participation in financing the 2025 State Budget (APBN) by absorbing at least Rp289.9 trillion in government bonds. This substantial involvement is primarily executed through debt switching mechanisms, where old maturing bonds are replaced with new ones having longer tenors. The primary objective of this strategy is to maintain a healthy government debt profile amid challenging APBN performance in 2025.

Monetary and Fiscal Policy Synergy

BI Governor Perry Warjiyo explained that the central bank's purchase of government bonds represents a strong collaboration between monetary and fiscal policies. Warjiyo emphasized that this coordination is essential for maintaining macroeconomic stability and promoting sustainable economic growth. The presence of Vice Finance Minister Thomas Djiwandono at the November 2025 Board of Governors Meeting (RDG) further underscored this collaboration, although Djiwandono had no voting rights.

Implications for Central Bank Independence

The increased involvement of BI in APBN financing has raised concerns about the potential erosion of the central bank's independence. Historically, BI has moved towards greater autonomy since the reform era. However, since the COVID-19 pandemic and the enactment of the Financial Sector Development and Strengthening Law (PPSK), BI has been compelled to engage in activities beyond its core mandate of maintaining currency stability.

Economic Context and Future Outlook

Economist Mika Martumpal from Bank CIMB Niaga noted that BI's room to further cut interest rates is narrowing due to the diminishing spread between the BI Rate and domestic inflation. Despite this, Mika believes that additional rate cuts are possible in December 2025, contingent on the USD/IDR exchange rate stabilizing below 16,500. The combination of lower interest rates and positive economic sentiment is expected to stimulate credit growth and economic activity.

Monetary Policy Adaptation

BI has not only been involved in direct APBN financing but has also adopted a more adaptive monetary policy stance. While the central bank continues to support economic growth, it is also focusing on its primary mandate of maintaining currency stability. The reduction of the BI Rate by 150 basis points throughout 2025, coupled with the decrease in the outstanding value of BI's monetary instrument (SRBI) from Rp916.97 trillion to Rp699.30 trillion, has helped increase domestic liquidity and reduce banking funding costs.