JAKARTA: Indonesia’s central bank cut its key interest rate on Wednesday (May 21), as expected by the market, resuming its monetary easing after holding policy steady at its previous three meetings.
Bank Indonesia lowered the benchmark 7-day reverse repurchase rate, known as the BI Rate, by 25 basis points to 5.50 per cent, as expected by 20 of 32 economists polled by Reuters. The rest had predicted BI would stand pat.
The central bank also cut its overnight deposit facility and lending facility rates by the same amount to 4.75 per cent and 6.25 per cent, respectively.
“This decision is consistent with the forecast of low and manageable inflation in 2025 and 2026 within target to maintain the stability of the rupiah in accordance with its fundamentals, and to contribute to economic growth,” Governor Perry Warjiyo told a press conference.
He said that growth needed to be strengthened to mitigate the impact of US tariffs, and policies were needed to support household demand and exports. Southeast Asia’s largest economy grew an annual 4.87 per cent in the first quarter, its weakest pace in more than three years. BI slightly revised down its forecast range for growth this year to 4.6 per cent to 5.4 per cent.
Rating agency Fitch and some analysts have said economic growth of 5 per cent this year would be a challenge given the global trade outlook and the weak first quarter reading.
Jakarta has set a 5.2 per cent growth target this year, and President Prabowo Subianto has pledged to lift growth to 8 per cent by the end of his term in 2029.
BI had cut rates in September last year and again in January. It had then held policy at the next three meetings as market volatility sparked by global trade tensions weighed on the rupiah.
The currency plunged to a record low against the US dollar in April after US President Donald Trump announced global tariffs, but it has since recovered by more than 3 per cent. BI had frequently intervened in the market to steady the rupiah.
Warjiyo said pressure on the rupiah had eased due to improved global market conditions and BI’s intervention.
