In August 2025, Bank Indonesia cut its benchmark interest rate by 25 basis points to 5 percent. What exactly is the benchmark rate, or what’s known as the BI Rate ? And how does it affect government bonds ?
What Is the BI Rate? The BI Rate, also known as the benchmark interest rate, is a rate determined by Bank Indonesia (BI). This rate serves as a reference for various financial institutions.
Its purpose is to guide financial institutions in setting interest rates offered to customers—whether for savings or loans.
The BI Rate is typically announced monthly by Bank Indonesia during the Board of Governors’ Meeting (Rapat Dewan Gubernur/RDG).
To stay updated, you can follow Bank Indonesia’s Instagram or YouTube channels.
If you want to view historical data on interest rates, simply visit bi.go.id, navigate to the BI Rate section, select your desired time period, and download the data.
Why Is It Important to Understand the BI Rate? By understanding the BI Rate, you can better plan and make informed financial decisions, such as:
1. Managing Loans If you have bank loans, your installment amounts may fluctuate. Knowing when the BI Rate rises or falls helps you anticipate changes in your repayment amounts .
When the BI Rate increases, loan installments tend to rise as well. This allows you to decide whether to pay off your loan early or seek additional income sources to maintain financial stability.
2. Managing Your Savings The BI Rate also influences savings interest rates . When the BI Rate decreases, savings returns become less attractive—so you might consider alternative ways to grow your money, such as entrepreneurship or investment.
Conversely, when the BI Rate rises, savings interest increases. This can be a good time to optimize your savings strategy for greater returns.
3. Planning Investment Strategies When the BI Rate is high, investment instruments may offer more attractive yields. However, when the rate is low, you need to find other investment options that provide better potential returns.
Impact of a Lower BI Rate A decline in the BI Rate has several effects on government bonds , including:
1. Rising Bond Prices When interest rates fall, bond prices tend to rise. Why? Because a lower benchmark rate makes bank savings and deposits less appealing.
Investors then prefer to place funds in bonds rather than deposits. Equity mutual funds may also be affected, prompting investors to shift toward fixed-income instruments for more attractive yields.
2. Inflow of Foreign Investors When interest rates decline, foreign capital can flow into a country, making Indonesia an appealing investment destination.
As an emerging market with investment-grade ratings , Indonesia often benefits from positive market movements when foreign funds enter assets like bonds and stocks.
This inflow strengthens the rupiah exchange rate and supports Indonesia’s economic fundamentals , leading to a healthier investment climate.
3. Decreasing Yields Market uncertainty often follows BI Rate adjustments, leading investors to be more cautious.
As a result, demand for higher-risk instruments declines, causing bond yields to fall .
4. Supporting Economic Growth Lower interest rates give businesses the opportunity to expand due to cheaper credit costs .
This encourages growth across sectors, supporting broader economic expansion .
Impact of a Higher BI Rate Just as rate cuts have their effects, an increase in the BI Rate also impacts the bond market in several ways:
1. Decline in Bond Prices Unlike a rate cut, a BI Rate hike causes bond prices to fall .
Investors expect higher returns, which results in declining demand for existing bonds.
2. Increasing Yields When Bank Indonesia raises interest rates, investors’ yield expectations increase .
This creates an opportunity to invest in bonds that offer higher returns compared to time deposits.
For example, Government Securities (SBN) are tied to the BI Rate, making them an appealing investment for 2–3 years with potentially optimal results.
3. Declining Value of Bond Mutual Funds Bond prices drop when the BI Rate rises, which also reduces the Net Asset Value (NAV) of bond mutual funds.
This adjustment happens because bond prices must align with the higher expected yield.
4. Lower Inflation Rate When BI raises interest rates, the goal is to stabilize the economy and control inflation .
This policy encourages people to save or invest in bank deposits and fixed-income instruments, as returns become more attractive.
As a result, it’s often an ideal time to save and invest.
5. Stable Rupiah Value The interest rate policy helps maintain rupiah stability , preventing extreme currency fluctuations.
Smart Government Bond Investment Strategies with DBS Treasures Priority Banking By understanding the BI Rate, you can better anticipate investment direction . Changes in the BI Rate directly influence the performance of government bonds , making it a key factor in shaping your investment strategy with DBS Treasures priority banking .
Through government bond investments regular coupon payments and potential capital gains from secondary market price increases. Some bond types can also be sold before maturity, offering flexibility in portfolio management.
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