By Stefanno Sulaiman and Ananda Teresia
JAKARTA (Reuters) – 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%, 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 U.S. tariffs, and policies needed to support household demand and exports.
Southeast Asia’s largest economy grew an annual 4.87% 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% to 5.4% compared with 4.7% to 5.5% previously.
The government has set a 5.2% growth target this year and President Prabowo Subianto has pledged to lift growth to 8% 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% of their capital from foreign funds with effect from June 1. The current level is 30%.
The moves follow a slowdown in loans growth in April to 8.88%, from 9.16% in the previous month. BI also revised down its 2025 loan growth target to 8% to 11% compared with 11% to 13% 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 U.S. dollar in April. It has since recovered by more than 3%.
Warjiyo said 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% 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.
(Reporting by Stefanno Sulaiman, Ananda Teresia; Editing by John Mair and Kate Mayberry)
