Third straight BI Rate cut. BI cut its policy rate by 25bps to 4.75% in September, extending the back-to-back easing from July and August and against expectations – only 2 of 38 economists had projected a cut (Exhibit 1). The deposit facility was lowered more sharply by 50bps to 3.75%, suggesting a widening gap of 100bp vs 75bp before. BI maintained a dovish tone and urging banks to accelerate lending rate reductions to support growth. BI stated it will continue to assess room for further rate cuts, citing benign inflation and the need to support higher growth without undermining rupiah stability.
Higher likelihood of Fed Funds Rate cut. BI maintained global GDP growth forecast at 3.0% in 2025, slower than 3.3% in 2024, citing the drag from U.S. reciprocal tariffs. BI also highlighted a greater likelihood of Fed Funds Rate cut in 2H, underpinned by higher unemployment rate. BI nonetheless will continue to strengthen external resilience through its triple intervention in the spot market, DNDF, and secondary bond market.
Loan growth picked up. Loan growth rose to 7.6% y-o-y in August from 7%, but still below the 8 11% target, reflecting businesses wait-and-see stance, high lending rates, and increased reliance on internal funds. BI noted that this has contributed to a high undisbursed loan ratio of 22.7% of total loans, mainly in manufacturing, mining, and wholesale trade. BI maintained its GDP growth forecast at above mid-point of 4.6 5.4% with stronger 2H performance driven by fiscal policy expansion.
Still limited monetary transmission. Despite BI delivering a total 150bp rate cut so far, monetary transmission remains limited. Deposit rates for one-month fell only 16bp to 4.8% ytd, constrained by special rates for large depositors (25% of total deposits), while lending rates slipped just 7bp to 9.1% (Exhibit 2). BI stressed the need for lower deposit and lending rates, noting its loose monetary stance is already expanding adjusted money base growth to 7.3% y-o-y in August from 7% in July. During investor call, BI said the 50bp DF cut was aimed at boosting liquidity and money supply while preserving stability.
Further decline in SRBI outstanding. SRBI outstanding continued to decline to IDR716tn as of 15 September from IDR720tn in August, signaling continued net liquidity injection. BI also continued its bond purchases, with total purchases reaching IDR217tn YTD, including IDR24tn burden sharing bonds debt switch, up from IDR186tn as of 20 August. The liquid assets-to-deposits ratio increased slightly to 27.3% from 27.1% in July.
We expect more BI Rate cuts ahead. We now expect BI to cut its policy rate to a terminal rate of 4.0% from 4.5% previously, reflecting a more dovish stance and a more ample liquidity outlook. In terms of trajectory, we expect BI to deliver another 50bp cut in 4Q25 and another 25bp in 1Q26. In the Q&A, Governor Perry highlighted BI s all-out pro-growth stance, cutting rates and expanding liquidity via SRBI and government bond purchases while maintaining prudence. Our forecast suggests a real policy rate of 1.5% in 2026, slightly below the long-term average of 1.6%, indicating a slightly loose stance (Exhibit 3).
Matching flusher liquidity. The deeper DF rate cut suggests BI s intention to reflect improved liquidity in the system and to maintain the policy rate credibility at the same time. BI noted that the sizeable placement of the government s excess cash balance (SAL) in banks has bolstered liquidity, compressing overnight interbank rate. The smaller BI Rate cut suggests BI s intention to maintain Rupiah stability and to anchor inflation, which is rising. The widening BI-DF rate spread was last seen in 2008 during GFC, when base money growth accelerated. The DF rate is what banks receive for placements at BI, so lowering it also acts as a discouragement (Exhibit 4).
