Bank Indonesia decreases rates in May

Bank brings rates down to three-year low: At its meeting on 20–21 May, Bank Indonesia (BI) decided to lower the BI-Rate by 25 basis points to 5.50% after holding it stable for three consecutive meetings. The decision was largely in line with market expectations and brought the BI-Rate to its lowest level since 2022.

Policy focus shifts to ailing economy: The Central Bank's decision was primarily motivated by the need to stimulate the economy which grew at the softest pace since 2021 in Q1. Additionally, BI expects low and controlled inflation within the 1.5–3.5% target corridor in 2025 and 2026, and the rupiah recently gained ground against the USD following a de-escalation of tariff tensions between China and the U.S.; both factors provided BI room to lower rates.

Further rate cuts expected but dependent on rupiah stability: Our panelists expect the BI-Rate to end 2025 below current levels as GDP growth remains sluggish in the remaining quarters and the Central Bank attempts to fuel domestic demand. A weaker-than-expected rupiah poses an upside risk to the policy rate, while softer-than-projected economic growth is a downside risk.

Panelist insight: United Overseas Bank’s Enrico Tanuwidjaja and Vincentius Ming Shen said: “Going forward, we keep our forecast for the BI rate to be cut once more in 3Q25 by 25bps to reach 5.25% and stay at that level till the end of the year. For 2026, we continue to believe that with BI’s inflation target range of 1.5%-3.5% (midpoint of 2.5%), and conditional upon stable and within-target inflation rates as well as stable rupiah exchange rate, there is room for BI rate to be lowered further.” Nomura’s Euben Paracuelles and Nabila Amani held a more dovish view: “We revise our monetary policy forecast and now expect BI to cut its policy rate by another 50bp this year to 5.0%, instead of leaving the policy rate unchanged (Figure 3). In our view, with BI repeating its statement today that going forward it will continue to monitor room to support economic growth, it has left the door open for further easing. However, this remains conditional on a supportive external environment and BI’s FX stability objective not being under threat.”

How should you choose a forecaster if some are too optimistic while others are too pessimistic? FocusEconomics collects Indonesian interest rate projections for the next ten years from a panel of 26 analysts at the leading national, regional and global forecast institutions. These projections are then validated by our in-house team of economists and data analysts and averaged to provide one Consensus Forecast you can rely on for each indicator. By averaging all forecasts, upside and downside forecasting errors tend to cancel each other out, leading to the most reliable interest rate forecast available for Indonesian interest rate.

Download one of our sample reports to visualize what a Consensus Forecast is and see our Indonesian interest rate projections.

Want to get access to the full dataset of Indonesian interest rate forecasts? Send an email to info@focus-economics.com.