Central Bank resumes rate cuts in July

Small cut after last month’s hold: At its meeting on 15–16 July, Bank Indonesia (BI) decided to lower the BI-Rate by 25 basis points to 5.25% after having stood pat at its June meeting. The decision was largely in line with market expectations and brought the policy rate to the lowest level in over two and a half years.

Within-target inflation motivates cut: BI justified the cut by highlighting that inflation is expected to remain within target this year and next, maintaining the stability of the rupiah in line with economic fundamentals is key and that further stimulus is needed to stimulate economic growth.

More cuts to follow: The Central Bank has indicated that it will continue to consider further reductions in interest rates to support economic growth. The majority of our panelists expect 25–50 basis points of further rate cuts by December, as inflation remains in range and GDP growth falls short of the official 5.2% target. The rest of our panelists see rates on hold for the remainder of 2025 amid elevated economic and trade uncertainty. The Bank will reconvene on 19–20 August.

Panelist insight: Nomura’s Euben Paracuelles and Nabila Amani said: “We maintain our forecast that BI will cut its policy rate by another 25bp this year to 5.00%, owing to the benign growth and inflation outlook. […] However, BI delivering the cuts will still be conditional on a supportive external environment owing to BI’s FX stability objective, which remains a priority. For now, we pencil in the next 25bp cut in December, when our U.S. economics team expects the Fed to resume cutting at the final FOMC meeting of the year.” ING’s Deepali Bhargava said: “With softer inflation prints helping real policy rates stay high and close to 3.4%, we continue to expect BI to deliver another 50bp of rate cuts by the first quarter of 2026. Rising risks to growth from weak household spending and an uncertain investment climate, combined with domestic policy uncertainty, increase the risks of higher-than-expected rate cuts.”

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