BI Doesn't Just Cut Rates to Help the Economy. GWM Is Its Other Lever
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5 min read
Bank Indonesia held its benchmark rate at 5.75% on 19 August 2026, the second meeting in a row without a change. If you only watch the BI Rate, that reads as "nothing happened." But in the same stretch, Bank Indonesia pushed Rp446.5 trillion of extra room into the banking system through a completely different tool: GWM, its reserve requirement.
That is not a small number, and it did not come from cutting rates. It came from Bank Indonesia changing how much of every rupiah banks take in deposits they are required to lock away, untouched, rather than lend out.
GWM stands for Giro Wajib Minimum, Indonesia's reserve requirement. It is the minimum share of customer deposits, called DPK (Dana Pihak Ketiga, or third-party funds: savings accounts, checking accounts, time deposits) that a bank must park as a current-account balance at Bank Indonesia rather than lend out.
The standard rupiah requirement has two parts: GWM Primer, set at 8% of rupiah DPK, and GWM Sekunder, set at 2.5% of rupiah DPK, held instead in government securities and other liquid instruments Bank Indonesia accepts. Together, they are the baseline slice of every deposit that never reaches a borrower.
Raising the BI Rate makes borrowing more expensive across the economy, which is meant to cool demand and support the rupiah. Raising GWM does something else entirely: it locks up more of each bank's deposit base at Bank Indonesia, shrinking the pool of rupiah available for loans, even if the interest rate on those loans has not moved at all.
Lowering GWM, or handing out a targeted GWM discount, works in reverse. A bank suddenly has more rupiah free to lend, without Bank Indonesia cutting its benchmark rate and without directly making credit any cheaper. That is exactly the tool Bank Indonesia leaned on through mid-2026, while the BI Rate itself sat still.
The mechanism is called KLM, Kebijakan Insentif Likuiditas Makroprudensial (the Macroprudential Liquidity Incentive Policy). Under KLM, a bank that lends more to sectors Bank Indonesia has flagged as priorities, including downstream mineral and coal processing, housing, tourism, small and micro business financing, and green finance, earns a reduction in how much it must hold as GWM. Instead of a cash handout, the incentive is freed-up lending room: rupiah that would otherwise sit idle at Bank Indonesia can go out as credit instead.
By the first week of August 2026, banks had drawn Rp446.5 trillion in total KLM incentives, a record high and more than the July 2026 figure, according to Bank Indonesia data reported by CNBC Indonesia, Kompas and Bloomberg Technoz on 19 August 2026. That amount split across three channels: Rp368.4 trillion through the financing channel (tied directly to loan growth in priority sectors), Rp73.2 trillion through the interest rate channel (rewarding banks that pass rate relief on to borrowers faster), and Rp4.9 trillion through the financing-to-funding channel.
The same reporting tied the incentive to real credit growth: bank lending grew 13.58% year on year in July 2026, up from 12.67% in June. That acceleration came without a corresponding jump in bad loans. The banking industry's capital adequacy ratio stood at 23.70% in June 2026, and its non-performing loan ratio held at 2.09% gross and 0.82% net, both figures Bank Indonesia and industry reporting treat as comfortably healthy.
Bank Indonesia is not done adjusting this lever. At its Board of Governors meeting on 22 July 2026, Bank Indonesia announced it would raise the maximum KLM incentive, the largest GWM reduction a bank can earn, from 5.5% to 6% of a bank's rupiah DPK, effective 1 September 2026. The stated goal is to keep strengthening credit distribution, deepen Indonesia's money market, and even out liquidity across banks of different sizes, according to Bank Indonesia's own announcement as reported by Bisnis.com, Kontan and Liputan6.
For a bank with a large deposit base, moving the ceiling from 5.5% to 6% of DPK is a meaningful amount of additional lending room, unlocked without a single change to the BI Rate itself.
None of this shows up if you only track the headline BI Rate. A held rate can still sit alongside a real loosening in how much banks are actually able to lend, which is the point: Bank Indonesia is running two policies side by side, one on the price of credit and one on its supply. Watching only the first one gives you half the picture of where lending conditions, and by extension the businesses that depend on bank credit, are actually headed.
NetWort covered what actually happened to Indonesian stocks the last time BI cut rates five times in a row, which is worth reading alongside this one since it is the price-of-money side of the same story. For the fuller macro picture, including where the BI Rate, inflation and the rupiah currently sit, NetWort's Macro Context page tracks them together in one place.