Indonesia’s Central Bank Cuts Rates to Boost Economy
Indonesia’s central bank cut rates on Wednesday for the fourth time since September and said a revised tariff deal with the United States was positive for Southeast Asia’s biggest economy amid weakening global trade and slowing domestic demand.
Rate Cut Details
Bank Indonesia (BI) cut the benchmark 7-day reverse repurchase rate by 25 basis points to 5.25 per cent, as expected by a slim majority of economists polled by Reuters, and also cut two other key rates. Governor Perry Warjiyo said the central bank would continue to observe room for more rate cuts, citing an expectation of low inflation through to 2026, a stable rupiah and bleak global economic outlook.
Impact of Tariff Deal
The central bank welcomed the trade deal, where Indonesian exports would incur a 19 per cent tariff instead of the 32 per cent rate initially proposed by Washington, Warjiyo said. The deal was a positive development that would support exports and broader economic prospects as the central bank maintained its GDP growth forecast for 2025 at a range of 4.6 per cent to 5.4 per cent.
Export Outlook
Warjiyo expressed optimism about Indonesia’s export outlook after the revised US tariff deal. "This deal will of course increase imports, but in our view, these are imports for productive purposes, which will in turn increase economic growth going forward," he said, adding certainty from the decision will also help with business decision making and prospects for capital inflows.
Economic Growth
Sluggish household spending saw Indonesia’s growth weaken in the first quarter, while the outlook for subsequent quarters has been clouded by the impact of US tariffs on global trade. In its easing cycle since September, BI had taken pauses in between rate cuts to try to head off volatility in the rupiah triggered by Trump’s trade policies and geopolitical tensions, even as Indonesia’s inflation remained muted.
Market Reaction
The rupiah, which has been rangebound so far this month, barely moved after BI’s announcement, while the main stock index extended gains to trade almost 1 per cent up. Brokerage Mandiri Sekuritas expects another 25-bp cut this year and 50-bp more in the first quarter of 2026 to counter weakening economic activity, its economist Rangga Cipta said.
Conclusion
In conclusion, Indonesia’s central bank has taken a step to boost the economy by cutting rates for the fourth time since September. The revised tariff deal with the US is expected to have a positive impact on the economy, and the central bank is optimistic about the export outlook. However, the economy still faces challenges, and the central bank may need to take further action to support growth.
