Indonesia’s central bank is expected to buy as much as 200 trillion rupiah ($12 billion) worth of government bonds next year to strengthen the transmission of its monetary policy and shield the economy from the effects of persistent foreign outflows, according to analysts cited by Bloomberg.
The planned purchases highlight Bank Indonesia’s determination to ensure its rate cuts filter through to the real economy. Despite reducing benchmark interest rates by 1.25 percentage points this year, commercial lending rates have been slow to respond, reflecting weak monetary transmission.
“The aim is clear: to address weak monetary transmission by reinforcing the pass-through of easing,” said Fesa Wibawa, an investment analyst at Aberdeen Group in Singapore. “There’s little chance of reversing its balance sheet expansion.”
The central bank’s intervention has played a critical role in cushioning domestic markets. Despite roughly $480 million in net foreign selling so far this month, yields on Indonesia’s 10-year government bonds fell to their lowest level since late 2021, Bloomberg data show.
According to analysts at DBS Bank and PT Mandiri Sekuritas, Bank Indonesia’s bond purchases next year will likely match this year’s total, while Citigroup Inc. and BNY Mellon forecast between 150 trillion and 200 trillion rupiah. Aberdeen believes the figure could be even higher. As of mid-September, Bank Indonesia had already bought around 217 trillion rupiah in bonds—more than double the total for all of last year.
The purchases have helped offset the impact of BI’s currency market interventions, which absorb rupiah liquidity and can push yields higher, said Handy Yunianto, head of fixed-income research at PT Mandiri Sekuritas.
Still, analysts warn that yields could rise again next year. Audrey Ong, FX and emerging-market macro strategist at Barclays Plc, expects Indonesia’s 10-year yield to increase to around 6.75% in the next 12 months, arguing that local bonds already appear expensive and could face pressure from fiscal policy debates. The yield stood at 6.10% on Friday, down about two basis points.
When Bank Indonesia cut its policy rate on September 17, it noted that bank lending rates had fallen by only seven basis points to 9.13% in the first eight months of 2025, compared with a full percentage-point reduction in the base rate over the same period. The disconnect between policy easing and consumer borrowing costs has fueled BI’s decision to continue large-scale bond buying.
By purchasing bonds in the secondary market, the central bank injects liquidity into the financial system, lowering yields and giving commercial banks more cash to lend. Banks currently hold about 22% of government bonds, according to finance ministry data, while Bank Indonesia holds 24%, non-bank institutions such as pension funds and insurers hold 22%, and foreign investors own 14%.
Despite BI’s support, Indonesia’s bond market has faced its heaviest foreign outflows in more than three years. September’s selling wave followed political unrest, new government spending pledges, and the surprise removal of Finance Minister Sri Mulyani Indrawati, a figure long admired by investors. Still, the 10-year yield barely moved last month, underscoring the central bank’s influence.
Bank Indonesia also announced the revival of a “burden-sharing” program, first used during the pandemic, under which it shares some bond interest payments with the government to help fund key initiatives. The move sparked concerns about BI’s independence, especially after its recent pledge to go “all-out” in supporting growth, Bloomberg noted.
Analysts say the central bank’s ongoing intervention will be crucial as foreign demand remains weak and domestic borrowing needs rise. Yet it also raises delicate questions about monetary autonomy and market discipline.
For now, Bank Indonesia’s bond purchases have stabilized yields and provided critical liquidity to the financial system. But as Bloomberg reports, maintaining that balance between economic stimulus and investor confidence may prove one of the central bank’s toughest challenges in the year ahead.
