Indonesia Macro Update - BI Rate Update 17 Sep 2025
KBVS MACRO UPDATE
Wednesday, 17 September 2025
BI Rate Cut as A Signal of Consistent Pro-Growth Policy
As expected, Bank Indonesia (BI) reaffirmed its accommodative and pro-growth stance this year by cutting the policy rate by 25 bps to 4.75% (Cons: 5.00%, KBVS: 4.75%, Prev: 5.00%). This decision was driven by several factors: a) the rising probability of a Fed rate cut, alongside accommodative policies from other central banks; b) the rigidity of domestic banking rates, both on deposits and lending; c) inflation currently at the lower bound of BI’s target range, with expectations remaining stable through end-2026; and d) a stable Rupiah.
Looking forward, we see further scope for BI to lower rates in line with its pro-growth stance and consistent with the employment creation mandate outlined in the revised P2SK Bill. We also expect this to gradually lower domestic funding costs, including banking and multifinance lending rates, alongside a downward adjustment in yields for both government securities and corporate bonds. If these dynamics unfold as expected, we also anticipate that Indonesia’s economic growth could strengthen toward the upper end of Bank Indonesia’s forecast range, reaching 4.6%–5.4% YoY by the end of 2025.
Regards,
Fikri C Permana – KBVS Research Team