Economic Growth and Interest Rates
The current economic situation in Indonesia has led to a call for the central bank, Bank Indonesia (BI), to lower its benchmark interest rate. This suggestion comes after U.S. President Donald Trump announced a 32 percent import tariff on Indonesian goods. Economist Wijayanto Samirin from Paramadina University believes that BI should take risks to boost economic growth, especially considering the upcoming Monthly Board of Governors’ Meeting on July 15-16, 2025.
The Need for a Rate Cut
Wijayanto notes that both the public and businesses are eager for a rate cut to stimulate the economy. However, he also acknowledges the risk of rupiah volatility. Despite this, he believes that the benefits of a rate cut outweigh the risks. The central bank has already reduced its benchmark rate twice this year, first to 5.75 percent in January and then to 5.5 percent in May.
Expert Opinions
Manulife Investment Management also views the potential for rate cuts in ASEAN economies, including Indonesia, as a way to counter the impacts of tariffs and spur growth. Murray Collis, Head of Asia ex-Japan Fixed Income at Manulife Investment Management, believes that this reduction will drive the performance of domestic bonds in these countries. BI Governor Perry Warjiyo also echoed this sentiment, stating that there is room for further rate reductions due to low inflation and the need for economic stimulus.
Economic Projections
Indonesia’s 2025 economic growth is now projected at 4.7-5 percent, a downgrade from the government’s initial 5.2 percent target. Finance Minister Sri Mulyani announced this revised projection on July 1, 2025. Inflation is estimated to stay between 2.2-2.6 percent in the second half of 2025, with the rupiah’s exchange rate forecast at Rp16,300-Rp16,800 per US dollar. The state treasurer highlighted that Trump’s tariffs and ongoing Middle East conflicts will impact the second quarter’s economic conditions.
Conclusion
In conclusion, the current economic situation in Indonesia calls for a rate cut to stimulate growth. With the central bank’s upcoming meeting and the potential for further rate reductions, it is likely that BI will take steps to boost the economy. As the country navigates the challenges of global trade and economic uncertainty, it is essential for policymakers to remain vigilant and take proactive measures to support economic growth. By lowering interest rates and stimulating the economy, Indonesia can work towards achieving its revised growth target and mitigating the impacts of external factors.
