Bank Indonesia Expands Incentives to Boost Foreign Capital Flows

Bank Indonesia (BI) has decided to expand incentives to encourage the entry of foreign portfolio investment while strengthening the stability of the rupiah exchange rate.

The policy is also aimed at accelerating the deepening of the money market and foreign exchange market (PUVA), increasing liquidity, and reducing liquidity segmentation in the money market and the banking sector.

Governor of BI Perry Warjiyo said that this step is part of BI's policy mix in maintaining economic stability amid global uncertainty.

"Expanding incentive policies to increase the inflow of foreign portfolio investment and strengthen the stability of the rupiah exchange rate, as well as accelerating the deepening of PUVA," he explained in a press conference, Wednesday, July 21.

To support the increase in foreign capital flows, he said BI increased the incentive for the reduction of premiums on portfolio investment hedging instruments, namely the incentive for the Swap Sell Hedge (Swap Buy Hedge to BI) transaction was increased from 10 percent to 12.5 percent.

In addition, BI also expanded the incentive on the Domestic Non-Deliverable Forward (DNDF) Hedging Sell instrument with a reduction in the premium by 15 percent.

In addition, he added, BI also provides incentives to expand the implementation of Local Currency Transactions (LCT) with partner countries to diversify foreign exchange transactions such as an additional premium of 10 percent for Swap Buy Hedge Transactions (Swap Sell Hedge to BI) and a reduction of 10 percent premium on the DNDF Sell Hedge instrument.

On the other hand, Perry said, Bank Indonesia also strengthened the implementation of monetary policy to maintain the stability of the rupiah and ensure inflation in 2026-2027 remains within the target range of 2.5 percent plus minus 1 percent.

He added that these efforts were carried out through the optimization of intervention strategies in the foreign exchange market, both through Non-Deliverable Forward (NDF) transactions in overseas markets and spot transactions and Domestic Non-Deliverable Forward (DNDF) in the domestic market.

In addition, BI will manage the interest rate structure in the money market to keep it in line with BI-Rate policies and pro-market monetary operations instruments.

Furthermore, the central bank also ensures the adequacy of liquidity in the money and banking markets by keeping the growth of primary money above 10 percent in line with the direction of monetary expansion policy.