Back-to-back BI Rate cuts. BI cut its policy rate by 25bps to 5.00% in August, extending its easing cycle after a similar move in July, defying consensus for another pause (Exhibit 1). This marks a faster pace of easing and first back-to-back easing since 2020 (Exhibit 2). BI maintained a dovish tone, emphasizing the need to push down bank lending rates to support economic growth. BI also stated it will continue to assess room for further rate cuts, citing benign core inflation and the need to support higher growth.
Accommodative global monetary stance. BI noted that wider US reciprocal tariffs are weighing on global growth and inflation, paving the way for a more accommodative global monetary stance. Indeed, BI stated that global GDP growth forecast will be slower than 3.0% in 2025 from 3.3% in 2024, led by broader US reciprocal tariffs impact. During the Q&A, Governor Perry highlighted a greater likelihood of a 50bp Fed funds rate cut in 2H, underpinned by easing inflation. BI nonetheless will continue to strengthen external resilience through its triple intervention in the spot market, DNDF, and secondary bond market. BI maintained its CAD projection at 0.5 1.3% of GDP for 2025.
Loan growth plunged further. Loan growth plunged further to 7.0% y-o-y in July from 7.8%, undershooting the 8 11% target range, yet BI left its 2025 forecast unchanged, citing weak demand from business and banks more cautious lending stance (Exhibit 3). Indeed, BI is more positive on 2025 growth, forecasting GDP near the mid-point of 4.6 5.4% with stronger 2H performance driven by fiscal spending acceleration and export gains from milder reciprocal tariffs.
Further decline in SRBI outstanding. SRBI outstanding continued to decline to IDR720tn as of 20 August from IDR783tn in July, signaling continued net liquidity injection. BI also continued its bond purchases, with total purchases reaching IDR186tn YTD, including IDR20tn debt switch of burden sharing bonds, up from IDR145tn as of 16 July. By mid-August, liquidity support from the RRR discount reached IDR384tn (4.8% of deposits), implying an effective RRR of 4.2% (Exhibit 4). The liquid assets-to-deposits ratio, however, remained steady from June at 27.1% in July (Exhibit 5).
Higher placement in SVBI from export proceeds. BI reported SVBI and SUVBI outstanding reached USD5bn in Aug, up from USD4bn in July, signaling stronger inflows from export proceeds, helped by higher exports (Exhibit 6). In the Q&A, BI noted the export proceeds conversion policy has helped boost FX supply and stabilize Rupiah. BI noted that 80% of export proceeds were converted into IDR, largely to cover commodity companies operating expenses. This marks an improvement from the 52% conversion rate in March June (USD12bn of USD22bn) (see Policy Rate Update: BI Holds Rate, But Easing Cycle Remains Intact).
Room for more cuts remains. We maintain our forecast for the BI Rate to fall to a terminal 4.50%. However, we have brought forward the timing of another 25bp cut to this year, with another 25bp in 1Q26. During the Q&A session, Governor Perry emphasized that further BI rate cuts remain open, supported by subdued core inflation and a negative output gap, indicating economic activity is still below potential. BI indicated that monetary operations will shift toward shorter-tenor instruments. Year-to-date, the BI Rate (7D tenor) has been cut by 100bp, while the 6M SRBI rate has dropped 190bp compared with 189bp in the 9M tenor and 196bp in the 12M tenor. BI also signaled it will continue to consider additional easing to bolster growth while safeguarding rupiah stability amid global uncertainty.
