Indonesia Makes Unexpected Rate Cut Following Robust Economic Data

• BI cuts rate to 5.00%, citing strong Q2 growth, stable inflation, and rupiah resilience.

• Monetary easing aligns with Prabowo’s fiscal push, to boost investment and sustain growth despite global challenges.

By Kenzie Aryasatya, Fayza Nawra Avanitanya, Muthia Noor Safitri, Imam Fakhri Prayogo Harianto 

August 22, 2025 at 16:30 GMT+7

Bank Indonesia made an unforeseen move on Wednesday (8/21) by lowering its benchmark interest rate by 25 basis points to 5.00%, the lowest level since 2022. The move marked the first consecutive cuts in the current easing cycle and signaled a clear shift toward a more accommodative monetary stance.

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Governor of Bank Indonesia Perry Warjiyo said the decision was supported by subdued inflation and a stable rupiah, and signaled that further easing remains possible if conditions allow. The decision comes amid global uncertainty, yet officials stressed that domestic conditions provided enough room for monetary support.

Analysts noted that the unexpected move underscored BI’s growing confidence in Indonesia’s economic resilience and willingness to preemptively bolster growth, even as other central banks in the region remain cautious in easing their policies.

Indonesia's Central Bank Governor Perry Warjiyo arrives for a press conference along with his deputies, at Bank Indonesia's headquarters in Jakarta, Indonesia | Source:REUTERS (Willy Kurniawan)

The decision was reinforced by stronger-than-expected economic data. Indonesia’s economy expanded 5.12% in the second quarter from a year earlier, the fastest pace in nearly two years and above most market forecasts. BI simultaneously raised its 2025 growth outlook to around 5.1%, placing it above the midpoint of the government’s 4.8–5.4% target range.

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The decision was reinforced by stronger-than-expected economic data. Indonesia’s economy expanded 5.12% in the second quarter from a year earlier, the fastest pace in nearly two years and above most market forecasts. BI simultaneously raised its 2025 growth outlook to around 5.1%, placing it above the midpoint of the government’s 4.8–5.4% target range.

Officials attributed the robust performance to resilient household consumption, steady investment inflows, and ongoing recovery in key sectors such as manufacturing and services. The upward revision reflects confidence that Indonesia’s growth momentum is sustainable despite global headwinds.

Economists highlighted that the resilience of domestic demand provides policymakers with greater flexibility to ease monetary settings without destabilizing inflation expectations or external balances, strengthening optimism over the country’s medium-term trajectory.

Bank Central Indonesia | Source: Katadta (ARIEF KAMALUDIN)

The rate cut also highlights coordination between monetary policy and the government’s fiscal objectives. President Prabowo Subianto has set an ambitious target of 5.4% economic growth by 2026, underpinned by a record US$234 billion draft budget for that year.

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The spending plan prioritizes defense modernization, large-scale infrastructure, and nutrition programs aimed at boosting productivity and long-term human capital. The alignment between the central bank and government reflects a deliberate effort to sustain Indonesia’s growth trajectory amid intensifying global competition and softer external demand.

While risks remain, from currency pressures to commodity price swings, the coordinated approach is expected to provide Indonesia with a stronger foundation to meet its medium-term development goals.

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Sources:

Bloomberg

Reuters