BI resumed rate cutting cycle. As we expected, Bank Indonesia (BI) lowered its policy rate by 25bp to 5.50%, marking its second cut since January in line with market expectations (though 13 economists of total 35 were calling for another pause) (Exhibit 1) (see Policy Update: BI Rate Cut to Resume Sooner Than Late). BI reiterated that the decision is consistent with efforts to keep inflation within target, stabilize the currency in line with fundamentals, and support economic growth. The tone was dovish, with BI emphasizing that further rate cuts are needed to stimulate growth.
Still prioritizing Rupiah stability. BI maintained its current account deficit projection at 0.5 1.3% of GDP for 2025, with 1Q expected to post a low deficit (Mansek: -0.05% of GDP in 1Q, -1.5% for full-year). BI will continue to strengthen external resilience through triple intervention in the spot market, DNDF, and secondary bond market. BI characterized the Rupiah as currently stable, with room for further appreciation. BI also noted that capital flows are moving away from the U.S., with momentum gradually returning to emerging markets. Nonetheless, BI still expects ongoing tariff negotiations to keep global uncertainty elevated.
Weaker domestic growth. BI expects global GDP growth to improve slightly to 3.0% in 2025 from 2.9%, though still slower than 3.3% in 2024, supported by a provisional 90-day U.S. China tariff truce. However, BI revised down Indonesia s 2025 GDP forecast to 4.6 5.4% (Mansek: 4.8%) from 4.7 5.5%, citing weak 1Q data and softer global demand. The loan growth target was also cut to 8 11% from 11 13% previously as April loan growth slowed to 8.9% y-o-y from 9.2% in March (Exhibit 2). BI urged banks to lower lending rates and support loan growth.
Liquidity support continued. SRBI outstanding declined to IDR870tn as of 19 May from IDR923tn in January, signaling continued net liquidity injection (see Macrosnap: Further Decline in Net SRBI Issuance Continues to Support Liquidity) (Exhibit 3). BI also continued its bond purchases, with total purchases reaching IDR96.4tn YTD as of 20 May, up from IDR81tn as of 21 April. Meanwhile, the ratio of liquid assets to deposits declined to 25.4% in April from 26.2% in March. Effective 1 June 2025, BI will raise the foreign borrowing limit (RPLN) to 35% of capital by introducing a 5% countercyclical buffer and will reduce the macroprudential liquidity buffer (PLM) by 100bps to improve access to external funding and enhance liquidity flexibility.
Modest increase in SVBI outstanding. BI reported SVBI and SUVBI outstanding at USD2.3bn as of May, up from USD1.7bn in April, with the average monthly SVBI auction size rising to USD415mn from USD284mn indicating a modest increase in export proceeds placement following the new regulations implemented in March. However, FX reserves declined by USD4.6bn in April to USD152.5bn, driven by IDR stabilization efforts and valuation losses on securities (Exhibit 4).
We continue to expect another BI Rate cut. We maintain our forecast of a lower BI Rate at 5.25%, implying another 25bp cut this year. BI has signaled that it will continue to assess room for further easing, while maintaining FX stability. BI also sees room for the Rupiah to strengthen further, supported by easing global uncertainty and rising expectations of Fed rate cuts. BI now expects two 25bp Fed cuts one each in September and December up from one previously. Domestically, with fiscal spending decelerating in April, reduced support for demand may provide additional room for BI to step in and support growth (see Fiscal Watch: April Realization and 2026 Budget Posture).
