Bank Indonesia has lowered its benchmark interest rate (BI-Rate) by 25 basis points to 5.00%. The Deposit Facility rate was cut to 4.25% and the Lending Facility rate to 5.75%.

This decision, taken during the Board of Governors Meeting on August 19–20, 2025, aligns with the low inflation outlook for 2025–2026, a stable rupiah, and the need to support growth in line with the economy’s capacity.

Bank Indonesia stated that it will continue to monitor the room for further rate cuts to support higher economic growth while maintaining currency stability. Macroprudential easing is also being strengthened to boost lending, lower interest rates, and improve banking liquidity.

Consistent Inflation Outlook Enables Policy Loosening

Inflation remained under control in July 2025, with the Consumer Price Index (CPI) at 2.37% year-on-year.

Core inflation stood at 2.32%, while administered prices rose by 1.32%. Volatile food inflation was recorded at 3.82%, supported by adequate food supply and the joint inflation control efforts through the National Food Inflation Control Movement.

Bank Indonesia forecasts inflation in 2025 and 2026 to remain within the target range of 2.5±1%.

Core inflation is expected to stay low due to anchored expectations, ample economic capacity, manageable imported inflation, and the effects of digitalization.

Strengthened Pro-Market Operations Boost Liquidity

To enhance monetary transmission, Bank Indonesia is strengthening its pro-market operations.

This includes adjusting interest rate structures on monetary instruments and foreign exchange swaps, increasing liquidity through SRBI auctions and government bond purchases in the secondary market, and empowering primary dealers to increase SRBI and repo market activity.

As of August 15, 2025, SRBI holdings stood at Rp720.01 trillion, down from Rp916.97 trillion in early January.

Bank Indonesia has purchased Rp186.06 trillion in government securities this year, comprising Rp137.80 trillion in the secondary market and Rp48.26 trillion in the primary market, including Sharia Treasury Notes.

Market rates are declining. INDONIA dropped to 4.78% on August 19 from 5.14% before the July rate cut.

SRBI yields for 6, 9, and 12-month tenors also declined to 5.28%, 5.32%, and 5.34% respectively. Two-year government bond yields fell to 5.54%, and 10-year bonds to 6.40%.

One-month deposit rates eased from 4.85% in June to 4.75% in July. However, bank lending rates remained relatively unchanged at 9.16%.

Foreign Capital Inflows and Rupiah Stability Remain Strong

The rupiah appreciated 1.29% against the US dollar in August up to the 19th, compared to the end of July.

This was driven by BI’s stabilization measures, continued foreign capital inflows, particularly into government bonds, and increased conversion of export earnings by exporters, supported by government policies.

Bank Indonesia will maintain rupiah stability through measured interventions in the spot market, Domestic Non-Deliverable Forwards (DNDF), and overseas NDF markets, alongside secondary market bond purchases.

Foreign reserves were recorded at USD 152.0 billion in July, sufficient for 6.3 months of imports or 6.2 months including government external debt payments.

The balance of payments remained healthy in Q2 2025. The current account deficit was low, backed by a USD 4.1 billion trade surplus in June.

Portfolio inflows to government bonds reached USD 1.0 billion each in July and up to mid-August.

Equities also saw inflows as the economic outlook improved and interest rates declined.

Digital Payments Soar Amid Policy-Driven Momentum

Digital financial transactions increased in July 2025, supported by secure and reliable payment systems. Payment transactions rose 45.30% year-on-year to 4.44 billion. QRIS usage grew 162.77%, while mobile and internet banking rose by 26.07% and 12.68% respectively.

Retail payments via BI-FAST grew 37.56% year-on-year to 414.62 million transactions worth Rp1,016.48 trillion. High-value transactions through BI-RTGS reached 959.32 thousand with a value of Rp19,791.94 trillion. Circulating currency rose by 9.68% year-on-year to Rp1,141.83 trillion.

Bank Indonesia continues expanding cross-border QRIS, including Indonesia–Japan corridors and preparations for Indonesia–China. QRIS Tap (TAP) adoption is also being promoted across sectors and regions.

Credit Growth Sluggish Despite Ample Liquidity Support

Bank credit grew 7.03% in July, slowing from 7.77% in June. Banks remain cautious in lending, preferring to place excess liquidity into securities, despite macroprudential incentives and lower interest rates. Liquidity remains ample, supported by deposit growth of 7.00% in July.

Credit growth was driven mainly by export-oriented sectors such as mining, plantations, transport, industry, and social services.

Consumption and working capital loans grew 8.11% and 3.08% respectively. Investment credit increased 12.42%. Islamic financing grew 8.31%, while MSME credit rose only 1.82%.

Bank Indonesia continues to encourage credit disbursement through loose macroprudential policy and coordination with the Financial System Stability Committee (KSSK). Credit growth for 2025 is projected at 8–11%.

The Macroprudential Liquidity Incentive Policy (KLM) has disbursed Rp384 trillion as of early August.

Funds went to state-owned banks (Rp171.5 trillion), private banks (Rp169.2 trillion), regional banks (Rp37.2 trillion), and foreign bank branches (Rp5.7 trillion). These incentives target sectors such as agriculture, real estate, public housing, construction, trade, manufacturing, transportation, warehousing, tourism, creative economy, MSMEs, ultra-micro businesses, and green sectors.

Bank resilience remains solid. The Capital Adequacy Ratio (CAR) was 25.81% in June, liquidity was strong with a liquidity-to-deposit ratio of 27.08% in July, and non-performing loans were low at 2.22% gross and 0.84% net.

Stress tests confirmed the system’s stability, supported by corporate financial health and profitability.

PHOTO: FREEPIK

This article was created with AI assistance.