Indonesia's Central Bank Cuts Interest Rate to Boost Economic Growth

Indonesia's central bank has made a surprise decision to cut its key interest rate by 25 basis points to 5%, in an effort to bolster stability and growth. This move comes just days after President Prabowo Subianto touted the country's economy, which has shown an expectation-defying growth of over five percent in the second quarter. The decision was made despite economist predictions that the central bank would hold its ground, and marks the fifth rate cut since September, with the lowest rate since late 2022.

Key Takeaways:

• Bank Indonesia lowered its benchmark seven-day reverse repurchase rate by 25 basis points to 5%, marking the fifth cut since September and the lowest rate since late 2022.
• The rate cut is aimed at promoting economic growth in line with the economy's capacity, as well as maintaining stability and low inflation.
• President Prabowo Subianto has set an ambitious goal of eight percent economic growth, which the country recorded positive second-quarter results of over five percent.
• Economist Jason Tuvey from Capital Economics expects more rate cuts, predicting that rates will be lowered to 4.50% by year-end.
• The move is seen as a surprise given that the central bank had projected slower economic growth in 2025 compared to last year.
• Bank Indonesia governor Perry Warjiyo stated that low inflation will give room for more interest rate cuts, citing the low inflation forecast for 2025 and 2026.

Statistics:

• The seven-day reverse repurchase rate was cut by 25 basis points to 5%.
• The rate cut is the fifth since September.
• The lowest rate since late 2022 is 5%.
• Economic growth in the second quarter was over five percent.
• President Prabowo Subianto's ambitious goal is eight percent economic growth.
• Bank Indonesiaprojects slower economic growth in 2025 compared to last year.
• Predicted rate cut by year-end is to 4.50% by Capital Economics.

Sources:

• AFP (2025)
• Bank Indonesia
• Capital Economics