Indonesia Macro Update - BI Rate Update 23 Apr 2025
KBVS MACRO UPDATE
Wednesday, 23 April 2025
BI Rate Maintained at 5.75% : Indonesia–U.S. Trade Negotiations Seen as a Key Forward-Looking Factor
As expected, Bank Indonesia (BI) has decided to maintain its BI Rate at 5.75% (Cons: 5.75%, KBVS: 5.75%, Prev: 5.75%). However, domestic liquidity conditions are tightening, mainly due to slowing third-party fund (DPK) growth. BI is also enhancing the implementation of the Foreign Funding Ratio (RPLN) to encourage banks to strengthen liquidity management and increase credit disbursement to the real sector.
Meanwhile, BI notes that rising global trade tensions remain a potential source of volatility, posing risks to the domestic economy via both trade and financial channels. Additionally, we foresee price channel risks, particularly from increased import prices for raw and intermediary goods—categories that represented 72.50% of Indonesia's total imports as of Mar ‘25.
Given these conditions, we view progress in Indonesia–U.S. trade negotiations as a critical factor for maintaining macroeconomic stability. On the trade side, such negotiations are essential to safeguard Indonesia’s export market, as the U.S. is Indonesia’s second-largest export destination with a share of 11.60% in Mar ‘25. They also offer opportunities to diversify export markets, such as through the acceleration of the Indonesia–EU Comprehensive Economic Partnership Agreement (IEU–CEPA), which is targeted for completion in mid-2025. From an investment standpoint, we hope these negotiations will open doors to increased U.S. direct and portfolio investment in Indonesia, supporting capital inflows and expanding domestic liquidity. Furthermore, improved trade ties could help stabilize Rupiah sentiment and reduce imported inflation risks, thereby preserving room for future BI Rate cuts. This outlook is supported by current inflation dynamics, with core inflation at 2.48% YoY and headline inflation at 1.03% YoY as of Mar ‘25.
Regards,
Fikri C. Permana – KBVS Research Team