Bank Indonesia's Destry Backs Growth as Rates Hold at 5.75%

A growth pledge that became the house view

When Destry Damayanti appeared before parliament as the only candidate to lead Bank Indonesia, she said she would support growth if lawmakers confirmed her. Six weeks into the job, that pledge has become the bank's working policy. In comments published on October 12, the governor said Indonesia's economy is still growing below its potential. She said this assessment is shaping how the bank sets interest rates, and that she does not want monetary policy to hold back growth2. She also gave the reason Bank Indonesia stood still while major central banks tightened in September. Raising rates just as the economy is picking up could stall the recovery, she argued, and the gap between actual and potential output leaves room to grow without overheating2.

This matters because her rise to the top job has been read throughout as a test of whether Bank Indonesia can serve President Prabowo Subianto's growth agenda and still remain a credible, independent defender of the rupiah. My reading of the coverage is that Destry has so far chosen growth-friendly framing while keeping the policy rate where it was. That leaves stability in place for now. It also means the hard trade-off has been put off, not settled.

How she got the job

The transition started suddenly. On July 27, State Secretary Prasetyo Hadi announced that Governor Perry Warjiyo had resigned, citing personal reasons. Under the Bank Indonesia Law, Destry, then senior deputy governor, automatically became acting governor2228. Warjiyo's second five-year term was due to run until 2028, so he left with about two years still to serve26. Reports differ on why. The official explanation was personal grounds30. An analysis from the University of Melbourne pointed to Reuters reporting of a "major disagreement" with Finance Minister Purbaya Yudhi Sadewa over liquidity policy to support Prabowo's growth push23. A Paramadina University economist said that because Indonesia has no tradition of officials resigning, markets assumed Warjiyo had been asked to go24.

On August 10, Prabowo put Destry forward as his sole nominee. Candidates for senior deputy governor and deputy governor were submitted alongside her149. At her fit-and-proper test before House Commission XI on August 26, she laid out a vision she called "Red and White Synergy for the Welfare of the Indonesian People." It rested on three missions: stability as the foundation for sustainable growth, an active contribution to growth, and closer coordination with the government and other authorities4243. She also listed five strategic initiatives. These included a stronger policy mix, a refocused regime for monitoring foreign-exchange flows to address what she called sizeable under-invoicing, and inclusive and sharia finance, which she described as a "game changer" toward 8% growth43. Coverage also reported her commitment to carry on existing policies and to deepen the money and foreign-exchange markets46.

The political expectations were clear. Before the hearing, commission chair Mukhamad Misbakhun said nominees chosen by the president should treat his mandate of faster growth and better public welfare as their top priority45. Parliament approved Destry in September, making her Bank Indonesia's first female governor5. Reports give slightly different dates for when she took office: one says parliament picked her on September 16, and another says she took up the post on September 229.

The independence question has not gone away

Destry's appointment largely calmed investors. The questions about Bank Indonesia's institutions did not go away with it. Analysts quoted at the time of Warjiyo's exit said markets would treat Destry as a sign of continuity. They warned that elevating Thomas Djiwandono, a deputy governor and Prabowo's nephew, would be seen with suspicion2427. Markets appear to have agreed with that reading. One regional macro review calculated that Indonesia's ten-year yield fell from 7.35% at the end of July to 6.97% by August 20, after her nomination. It treated that drop of roughly 38 basis points as the price investors had been charging for uncertainty over who would run the central bank8. Another account said the rupiah gained 1.4% and the Jakarta Composite Index rose 6.6% around her taking office29.

The legal backdrop has also changed. In June, parliament amended the financial-sector law to give Bank Indonesia an explicit dual mandate that includes growth and job creation29. The same legislation lets lawmakers issue binding recommendations to the central bank and to financial regulators27. The rating agencies disagree on how much this matters. Moody's and Fitch cited the mandate changes among their reasons for moving Indonesia's outlook to negative, while S&P kept a stable outlook and said it did not expect operational independence to be drastically affected27. In my view, Destry's growth rhetoric fits the new legal mandate exactly. That is why investors will judge her by what she does more than by what she says.

Holding steady while the Fed tightens

What she has done so far is hold rates. Bank Indonesia raised its policy rate by a combined 100 basis points in May and June, including an off-cycle increase on June 9, to defend a rupiah that had fallen to record lows during the turmoil linked to the war in the Middle East15185. It has kept the rate at 5.75% since then. The July meeting surprised markets, which had expected a further 25-basis-point rise. The August meeting, Destry's first as acting governor, was another hold13. At her first meeting as confirmed governor on September 23, the bank again left the BI-Rate at 5.75%, with the deposit facility at 4.75% and the lending facility at 6.50%20. Destry said the earlier hikes had been enough to deal with global uncertainty, and that stability remains the focus but the bank must also make room for the economy to move faster5.

That decision came one week after the Federal Reserve's. On September 16, the Federal Open Market Committee voted 12–0 to raise the federal funds rate by 25 basis points to 3.75%–4%, its first hike since 20233134. Chair Kevin Warsh said inflation had been too high for too long, and pointed to energy costs from the Iran war and geopolitical tensions3137. Sixteen of the 18 officials who submitted projections saw at least one more increase as possible this year31.

The usual emerging-market rule is that a Fed hike pushes partner central banks to follow in order to protect their currencies. Bank Indonesia did not follow, and it said so openly2. It used targeted tools in place of a rate rise. It offered bigger discounts on hedging costs for foreign investors buying rupiah assets7, building on the incentives it raised in July to 12.5% for swap hedging and 15% for DNDF hedging17. Its macroprudential tools continue to channel liquidity toward lending: the bank says reserve-requirement relief has released Rp 461 trillion, of which about Rp 68 trillion went into new housing credit3.

Where forecasters disagree

The outlook depends heavily on what the Fed does next, and expectations for the Fed are changing. FOMC minutes released on October 7 showed most participants still thought another hike by year-end was likely, while stressing that decisions depend on incoming data38. Since then, core PCE inflation has eased to 3% and September payrolls rose by only 29,000. New York Fed President John Williams said he sees "no need for urgency"39. Futures markets were close to evenly split on an October hike just after the September meeting37. J.P. Morgan's research team expects the Fed to stay on hold for the rest of 202636.

Forecasters for Bank Indonesia are just as divided. Bank Permata's Faisal Rachman expected one more 25-basis-point hike in the fourth quarter as US rates rise. Barclays' Brian Tan expects no change through 2026 and 2027, provided pressure on the rupiah does not build again5. Domestic inflation gives Destry some room: August inflation was 3.19%, within the target band5. Still, the macro review cited above notes that the second-quarter current-account deficit reached 3.3% of GDP and was funded almost entirely by portfolio inflows. In its words, Indonesia is spending several buffers to hold one position8. The president's 8% growth target also sits well above the bank's own forecast of 4.9%–5.7% for 202684.

What to watch

Bank Indonesia's next decision is due on October 21, a week before the Fed's October 27–28 meeting1337. The rupiah was trading around Rp 17,860 per dollar as of mid-October2. If US data keeps softening and the Fed pauses, Destry's position will look justified, and her growth focus may come to look like careful judgement. If the Fed hikes again and the rupiah falls, she will face the test critics described when Warjiyo left: whether a governor can raise rates or refuse the government when stability demands it, and still keep the job23. Her stated preference for growth is now public. Whether she can defend the rupiah at the same time has not yet been tested.