Indonesia Macro Update - BI Rate Update 19 Jun 2025
KBVS MACRO UPDATE
Thursday, 19 June 2025
Credit growth is limited, BI Rate needs accommodative fiscal support
Bank Indonesia (BI) decided to keep its benchmark interest rate unchanged at 5.50% (Cons: 5.50%, KBVS: 5.50%, Prev: 5.50%), reflecting a cautious stance amid heightened global uncertainty. Key concerns include rising geopolitical tensions, particularly the conflict between Iran and Israel, which has the potential to push global oil prices higher and prompt investors to shift portfolios toward safer assets.
The domestic macroeconomic backdrop continued to show signs of moderation and still within Bank Indonesia’s target. Credit growth currently stands at 8.43% YoY (Prev: 8.88% YoY), and although Bank Indonesia maintains its projection of 8–11% YoY growth for FY25, the figure has been declining for seven consecutive months, indicating persistent weakness in lending activity despite supportive policy measures.
The slowdown in credit growth is closely linked to ongoing structural changes in Indonesia’s economy. On the demand side, stagnation in labor-intensive sectors has limited job creation and wage growth, resulting in weaker consumer purchasing power. Under these circumstances, monetary policy easing, such as reducing the BI Rate, has had limited impact on boosting consumption and credit growth. To strengthen demand, fiscal stimulus should be directed toward programs with high multiplier effects, such as social protection, and support for MSMEs, which can generate jobs, raise incomes, and stimulate broader economic activity.
On the supply side, producers are also under strain, as reflected in Indonesia’s Manufacturing PMI, which remains in contraction territory. Possibly because of these conditions, improving the investment climate must be a key priority to address supply-side constraints.
Bank Indonesia’s forward policy remains focused on maintaining rupiah stability, enhancing liquidity, and supporting sustainable growth. To reinforce these goals, BI will optimize monetary operations through SRBI, SVBI, and SUVBI instruments, with rate adjustments to maintain market interest.
Regards,
KBVS Research Team