Indonesia CB resumes monetary easing to support slowing economy

Indonesia’s central bank cut its key interest rate on Wednesday as the market expected, resuming its monetary easing to support the slowing economy after pressure on the rupiah receded.

Bank Indonesia (BI) lowered the benchmark 7-day reverse repurchase rate, known as the BI Rate, by 25 basis points to 5.50 per cent, as expected by 20 of 32 economists polled by Reuters. It also cut two other policy rates by the same amount.

“This decision is consistent with the forecast of low and manageable inflation in 2025 and 2026 within target to maintain the stability of the rupiah in accordance with its fundamentals, and to contribute to economic growth,” Governor Perry Warjiyo told a press conference in Jakarta.

He said growth needed to be strengthened to mitigate the impact of US tariffs, and policies needed to support household demand and exports.

Southeast Asia’s largest economy grew an annual 4.87 per cent in the first quarter, its weakest pace in more than three years.

BI slightly revised down its forecast for growth this year to a range of 4.6 per cent to 5.4 per cent compared with 4.7 per cent to 5.5 per cent previously. The government has set a 5.2 per cent growth target this year and President Prabowo Subianto has pledged to lift growth to 8 per cent by the end of his term in 2029.

In the press conference, Governor Warjiyo urged banks to do more to support economic growth by lowering their lending rates and giving out more loans.

“Let’s lower our interest rates, especially lending credit to support growth,” Warjiyo said.

BI also said it would allow banks to source up to 35 per cent of their capital from foreign funds with effect from June 1. The current level is 30 per cent.

The moves follow a slowdown in loans growth in April to 8.88 per cent, from 9.16 per cent in the previous month. BI also revised down its 2025 loan growth target to 8 per cent to 11 per cent compared with 11 per cent to 13 per cent previously.

BI cut rates in September last year and again in January. It then held steady at the next three meetings as market volatility sparked by global trade tensions weighed on the rupiah, which plunged to a record low against the US dollar in April. It has since recovered by more than 3 per cent.

Warjiyo further added that pressure on the rupiah had eased due to improved global market conditions and BI’s intervention, but the bank was ready to take action, including intervention in the offshore market, if pressures reemerged.

Analysts said BI could make more cuts in the coming months given the low inflation outlook, and depending on the rupiah’s performance.

“My sense is BI is likely to deliver at least two more rate cuts in 2025 to 5.00 per cent as the economy needs to be supported by easing the monetary policy if USD/IDR continues to move lower to 16,000,” SMBC economist Ryota Abe said.

The central bank also cut its overnight deposit facility and lending facility rates by the same amount to 4.75 per cent and 6.25 per cent, respectively.