Arnoldus Kristianus, Jakarta – Bank Indonesia (BI) lowered its benchmark interest rate by 25 basis points to 5.75 percent during its January policy meeting, marking its first cut in four months. The central bank also reduced its deposit facility rate to 5 percent and the lending facility rate to 6.5 percent, in a move aimed at increasing economic growth and controlling inflation.
"This decision aligns with the continued low inflation outlook for 2025 and 2026, which is expected to remain within the 2.5 percent target range, the rupiah's stability, and the need to support economic growth," Governor Perry Warjiyo said during a press briefing at BI headquarters on Wednesday.
The latest cut follows BI's September 2024 rate reduction from 6.25 percent to 6 percent, as the central bank maintained its benchmark rate at 6 percent for four consecutive months.
To further stimulate growth, BI will continue its accommodative macroprudential policy by enhancing liquidity incentives for banks. These measures aim to boost credit and financing to priority sectors such as small and medium enterprises (SMEs) and green economy initiatives while adhering to prudential principles.
Payment system policies will also focus on supporting growth, particularly in trade and SMEs, by strengthening payment infrastructure and expanding digital payment adoption, BI said.
"The policy mix of monetary, macroprudential, and payment systems will ensure stability while reinforcing sustainable economic growth," Perry said.
The rate cut comes amid mixed expectations from economists. Hosianna Evalita Situmorang, an economist at Bank Danamon, had anticipated BI would hold its rate at 6 percent in January, citing global economic conditions and the US Federal Reserve's policy stance.
"The forecast was for rates to remain at 6 percent, consistent with global economic developments and the strengthening of the US dollar," Situmorang said, pointing to the Dollar Index (DXY) hitting 109.
Looking ahead, Situmorang warned that BI's room for further rate cuts in 2025 could be limited, particularly given the potential impacts of US trade policies under former President Donald Trump. A stronger dollar could put pressure on emerging market currencies, including the rupiah.
"However, if the rupiah holds up relatively well, we might see a rate cut in the second half of 2025," she added.
The central bank's decision highlights its dual mandate of maintaining stability while supporting growth, as Indonesia navigates global economic uncertainties and domestic recovery efforts.
Source: https://jakartaglobe.id/business/bank-indonesia-cuts-key-interest-rate-to-575-percen