Bank Indonesia pauses rate cuts, leaves door open to more easing

CNA

5 hours ago

JAKARTA :Indonesia's central bank paused its easing cycle on Wednesday, as expected, while urging commercial banks to reduce lending rates and boost credit growth to support the economy.
Economists said the central bank was likely to continue its gradual pace of monetary easing, given headwinds from tariffs and geopolitical uncertainties on Southeast Asia's largest economy. Some predict a further 50 basis points of cuts in the second half of the year.
On Wednesday, Bank Indonesia kept the benchmark 7-day reverse repurchase rate at 5.50 per cent, as expected by 21 of 31 economists polled by Reuters. Its two other main rates were also left unchanged.
BI has cut interest rates three times since September and downgraded its economic growth outlook twice this year, listing challenges such as slowing domestic demand and shaky global growth due to the impact of U.S. tariffs and wars.
BI maintained its 2025 growth forecast at 4.6 per cent to 5.4 per cent, anticipating improving economic activity in the second half.
Governor Perry Warjiyo, speaking at a press conference, said BI remains open to further lowering borrowing costs, as inflation is expected to remain within target this year and next year, while household spending and investment need stimulus.
"The (rate cut) timing of course will depend on global conditions, especially with regard to rupiah stability," he said.
Warjiyo called on banks to align with BI's easing measures and lower their credit interest rates, highlighting that loan growth slowed to 8.43 per cent in May. That rate was the slowest since June 2023, according to LSEG data.
BI has relaxed banks' reserve requirements, a policy that has provided additional liquidity of 372 trillion rupiah ($22.83 billion) to lenders, Warjiyo said.
Annual inflation was 1.6 per cent in May, near the bottom of BI's target range of 1.5 per cent to 3.5 per cent, which some analysts say points to sluggish household spending.
"Despite a benign inflation outlook, policymakers likely view the recent Middle East tensions and its impact on the regional currencies, with trepidation," said DBS economist Radhika Rao, who expects cuts of 50 basis points in total this year to a terminal rate of 5 per cent.
To stimulate demand, the government has launched a $1.5 billion incentive package, including transportation subsidies and cash and food handouts for June and July.
($1 = 16,295 rupiah)