October 23, 2025
JAKARTA – Bank Indonesia (BI) has kept its benchmark interest rate in place after decreasing it by 25 basis points (bps) in each of the past three meetings but has said it is open to more cuts to encourage lending and push economic growth to its true potential.
Following the central bank’s two-day monthly policy meeting, BI Governor Perry Warjiyo announced in a press conference on Wednesday that the key interest rate, the BI Rate, remained at 4.75 percent.
“Going forward, BI will continue to monitor the effectiveness of transmission in the loose monetary policy that has been undertaken, the economic growth and inflation outlook as well as the stability of the rupiah exchange rate,” Perry said regarding whether BI would “make use of the room to cut the BI Rate”.
He went on to say that the possibility of further cuts was “still open”, given that inflation had been steadily maintained within the central bank’s target range of 2.5 plus/minus 1 percent for an extended period.
The governor also pointed to gross domestic product growth as a factor to consider.
“We view that the current and next year’s [projected] economic growth is still below the national output capacity. Thus, pushing domestic demand to reach high economic growth is consistent with all of our wishes,” the governor said.
The central bank’s projection for this year’s GDP growth is “above the midpoint” of the 4.6-to-5.4 percent range, and higher for 2026.
More cuts will have to wait “because our focus now is on strengthening the effectiveness of transmission”, Perry said, referring to how quickly changes in central bank interest rates are passed through to commercial banks’ lending and deposit rates.
Perry once said it would take about 6 months until a benchmark rate reduction translates to lower rates charged by banks from borrowers.
The average loan rate had only come down by 15 bps to 9.05 percent as of September from 9.2 percent at the turn of the year. BI, on the other hand, had cut its rate by 150 bps since the monetary tightening cycle reached its peak last year.
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Half of that total reduction took place in September last year, followed by cuts of 25 bps in January and May of this year. Then BI undertook more cuts in three consecutive meetings in July, August and September, each time reducing the rate by 25 bps.
The slow transmission translated to soft growth in loan issuance at just 7.7 percent year-on-year (yoy) in September, and 7.56 percent yoy in the preceding month, despite last month’s Rp 200 trillion (US$12 billion) liquidity injection as the state moved funds previously parked at the central bank to state-owned commercial banks.
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“Demand for credit is not yet strong on account of business players maintaining a wait-and-see stance, internal financing optimization by corporations and loan rates that are still relatively high,” Perry said.
The weak loan demand is reflected in the volume of undisbursed loans, which reached Rp 2.3 quadrillion in September, or 22.54 percent of existing credit limits, Perry revealed.
To expedite the lagging transmission, BI introduced a new liquidity incentive for banks that disburse loans at lower rates. The mechanism would give banks more liquidity by reducing statutory reserve requirements, Perry explained, noting that the specific amount will depend on “how fast” banks adjust to lower central bank rates.
Permata Bank chief economist Josua Pardede wrote in an analysis on Wednesday that the room for policy rate cuts “will be more limited going forward”.
“We see that BI still has room to implement additional rate cuts in 2025 and 2026, but any further adjustments must be carried out cautiously, given the prevailing uncertainties surrounding Indonesia’s stability,” said Josua.
He said that the potential 75 bps cut by the United States Federal Reserve this year would provide BI with sufficient room to ease its policy further but pointed out that domestic risks loomed large because of expansionary fiscal and monetary policy.
Expansionary policy would lead to higher money supply and expose Indonesia to the risk of higher inflation and rupiah depreciation, the economist said.