Jakarta, Indonesianpost.com – Indonesia’s central bank has resumed its rate-cutting cycle as cooling inflation, slower growth and a steadier rupiah offer room to loosen policy settings.
Bank Indonesia on Wednesday cut its benchmark seven-day reverse repo rate by 25 basis points to 5.50%, breaking a streak of three consecutive holds.
It also trimmed its annual growth forecast slightly, citing the impact of global uncertainty amid U.S. reciprocal tariffs.
“Policy responses must be strengthened to boost growth,” Bank Indonesia Gov. Perry Warjiyo said at a press conference.
Six out of eight economists polled by The Wall Street Journal had expected a cut on Wednesday, which brings Indonesia’s overnight deposit facility rate to 4.75% and its lending facility rate to 6.25%. Two had forecast a hold.
The decision is consistent with the bank’s stance of keeping inflation in check, the rupiah stable, and economic growth steady, Warjiyo said. BI’s policy focus is on boosting domestic demand and seizing export opportunities, he added.
Softer economic growth at home and calmer foreign-exchange markets had set the stage for a cut in May, which many economists expect to be followed by at least one more this year.
Indonesia’s economy expanded at its slowest pace in over three years in the first quarter, ahead of U.S. tariffs on countries including Indonesia that added a headwind to growth.
Though Bank Indonesia tweaked its growth forecast for 2025 between 4.6% and 5.4% from 4.7% to 5.5%, it expects momentum to improve in the second half thanks to domestic demand and increased government spending.
Indonesia’s government recently announced a flurry of policy moves including a free-meal program that have raised concerns about fiscal stability. That plus the tariff shock pulled the rupiah to record lows against the dollar in April but the Indonesian currency seems to be on sounder footing.
The rupiah is up 1.13% against the dollar month-to-date, supported by BI’s stabilization measures and easing global financial market uncertainty, the BI governor added. He expects the rupiah exchange rate to remain stable going forward.
Although still weak by historical standards, the rupiah has rebounded over 2% against the dollar since late April, Capital Economics senior Asia economist Gareth Leather said.
But with global uncertainty likely to keep volatility high, Bank Indonesia is likely to keep easing gradually, he said in a note. Capital Economics expects 50 basis points more of rate cuts this year. (Nas/WSJ)