Indonesia Macro Update - BI Rate Update 16 Jul 2025
KBVS MACRO UPDATE
Wednesday, 16 July 2025
Bank Indonesia Cut the BI Rate by 25 bps to 5.25%, Reinforcing Its Pro-Growth Stance
Bank Indonesia (BI) has once again lowered its benchmark interest rate (BI Rate) by 25 bps to 5.25% as part of its ongoing pro-growth monetary stance for 2025. We believe this decision was driven by; First, BI is maintaining its pro-growth posture; Second, inflation remains well within target; and Third, capital flows are beginning to shift out of the United States and into other emerging markets.
To further solidify its pro-growth monetary stance, BI is set to implement a series of follow-up strategies. These include:a) optimizing monetary operations; b) BI is pushing for stronger bank credit growth; c) A stable infrastructure and a healthy financial industry structure; and d) BI has also issued a call to businesses to align with its forward-looking pro-growth stance and contribute to national economic momentum.
Looking ahead, further rate cuts remain on the table. We project between one and two more 25 bps reductions before the end of 2025. However, *we remain cautious that this latest rate cut may limit the potential for Rupiah appreciation.
Given BI’s continued pro-growth stance and the potential positive impact on funding costs, liquidity conditions, and overall economic momentum, we also expect SUN yields to gradually decline, our forecast places 10-year SUN yields in the range of 5.85% to 6.25% by the end of 2025.
Regards,
Fikri C Permana – KBVS Research Team