Faster rate-cutting pace. As we expected, BI cut its policy rate by 25bps to 5.25% in July, resuming its easing cycle after only a one-month pause in June (Exhibit 1). The previous cuts in May and January were preceded by three-month pauses, so this marks a faster pace of easing (Exhibit 2). The cut went against consensus expectations, with 18 out of 33 economists forecasting a hold. BI maintained a dovish tone, emphasizing the need to support economic growth. BI also stated it will continue to assess room for further rate cuts, with timing and magnitude depending on global and domestic economic developments.
Positive trade agreement outcome. BI maintained its CAD projection at 0.5 1.3% of GDP for 2025 and will continue to strengthen external resilience through its triple intervention in the spot market, DNDF, and secondary bond market. During the Q&A, Governor Perry stated that the recent trade deal with the US produced broadly positive outcomes, supporting Indonesia s exports to the US and encouraging growth-enhancing imports. It also boosts market confidence by providing policy certainty, supporting capital inflows, and improving business sentiment.
Slower loan growth below BI target. BI maintained its global GDP growth forecast at 3.0% in 2025, with a downward bias toward 2.9%, down from 3.3% in 2024. It also kept Indonesia s 2025 GDP forecast at 4.6 5.4% (Mansek: 4.8%) and expects growth to pick up in 2H, supported by domestic demand and exports. BI maintained its 2025 loan growth target at 8 11% despite June s sharp slowdown to 7.8% y-o-y from 8.4% in May (Exhibit 3), citing the need for lower lending rates to support loan growth.
Further decline in SRBI outstanding. SRBI outstanding continued to decline to IDR783tn as of 16 July from IDR811tn in June, signaling continued net liquidity injection. BI also continued its bond purchases, with total purchases reaching IDR145tn YTD as of 16 July, up from IDR124tn as of 18 June. As of the second week of July, total liquidity injection from the RRR discount reached IDR376tn (4.7% of deposits), implying an effective RRR of 4.3%. The liquid assets-to-deposits ratio rose to 27.1% in June from 25% in May, indicating an improvement in liquidity conditions (Exhibit 4). However, BI noted that banks are flush with liquidity but remain risk-averse, favoring investment in securities over expanding their loan books.
Higher placement in SVBI and SUVBI. BI reported SVBI and SUVBI outstanding reached USD4bn in July, up from USD2.5bn in June, signaling stronger inflows from export proceeds. In the Q&A, BI noted the export proceeds conversion policy has helped boost FX supply and stabilize the Rupiah. In June, FX reserves increased slightly to USD152.6bn from USD152.5bn in May. While no new update was provided, BI previously stated that USD22bn in export proceeds entered the system in March June, with USD12bn converted to IDR, higher than the USD14bn reported for all of 2024 (see Midyear Economic Outlook: Hope Lies in Counter-Cyclical Policy)
More rate cuts to come. We maintain our forecast for the BI Rate to fall to 5.00%, implying another 25bp cut this year and 50bp in 1Q26 to reach 4.5%. BI has signaled there is room to cut, supported by low inflation and the need to boost growth. During the Q&A session, Governor Perry emphasized BI s full commitment to supporting economic growth through accommodative monetary operations and Rupiah stability, noting that credit demand remains limited outside of export-oriented and key domestic sectors (e.g., trade, transport, construction, and services). He added that broader credit expansion requires continued policy support and lower interest rates.
