Indonesian Macro Update - BI Rate Update 22 Aug 2025
KBVS MACRO UPDATE
Friday, 22 August 2025
BI’s Accommodative Rate Cut: A Pro-Growth Strategy in Support of Asta Cita
Bank Indonesia (BI) has once again moved to ease its monetary stance, lowering the benchmark BI Rate by 25 bps to 5.00%. Yet, the immediate challenge confronting BI is the sluggish pace of domestic credit expansion. At the core of BI’s decision lies a favorable inflation outlook. Another key factor enabling BI’s rate cut is the resilience of capital inflows, coupled with expectations that the Federal Reserve may cut its policy rate twice—by 25 bps each—before the end of 2025.
Looking ahead, the cumulative 100 bps of rate cuts delivered this year is expected to gradually filter through the financial system. From a broader macroeconomic perspective, BI’s policy shift highlights the classic trade-off facing emerging market central banks.
In the bond market, Bank Indonesia’s aggressive easing is expected to lend immediate support to short-tenor SUN and short-duration corporate bonds. We project the SUN2Y yield to move toward 5.25%, reflecting a decline of about 25 bps from current levels, while the SUN10Y yield is likely to converge around 6.20% ahead of the next BI Board of Governors’ meeting.
We believe the months ahead will serve as a crucial test of Bank Indonesia’s ability not only to maintain price and currency stability, but also to stimulate credit growth that can translate monetary easing into stronger momentum in the real sector. Our expectation is that BI will deliver another 25 bps rate cut at its upcoming meeting.
Regards,
KBVS Research Team