Indonesia central bank cuts benchmark rate, welcomes US tariff deal

CNA

2 days ago

JAKARTA :Indonesia's central bank cut rates on Wednesday for the fourth time since September and said a revised tariff deal with the United States was positive for Southeast Asia's biggest economy amid weakening global trade and slowing domestic demand.
Bank Indonesia (BI) cut the benchmark 7-day reverse repurchase rate by 25 basis points to 5.25 per cent, as expected by a slim majority of economists polled by Reuters, and also cut two other key rates.
Governor Perry Warjiyo said the central bank would continue to observe room for more rate cuts, citing an expectation of low inflation through to 2026, a stable rupiah and bleak global economic outlook.
"BI is already all out in boosting economic growth, including in supporting loan growth," the governor told a press conference.
President Donald Trump's announcement of a tariff deal on Tuesday gave BI another reason to ease monetary policy, some analysts said.
"External caution was counterbalanced by the fresh news over the trade deal," DBS Bank senior economist Radhika Rao said.
"Policymakers have been opportunistic this year, prudently tapping periods of market stability to lower rates, with the latest move also coming against the backdrop of the successful completion of a trade deal with the U.S."
The central bank welcomed the trade deal, where Indonesian exports would incur a 19 per cent tariff instead of the 32 per cent rate initially proposed by Washington, Warjiyo said.
The deal was a positive development that would support exports and broader economic prospects as the central bank maintained its GDP growth forecast for 2025 at a range of 4.6 per cent to 5.4 per cent, he said.
Warjiyo expressed optimism about Indonesia's export outlook after the revised U.S. tariff deal.
"This deal will of course increase imports, but in our view, these are imports for productive purposes, which will in turn increase economic growth going forward," he said, adding certainty from the decision will also help with business decision making and prospects for capital inflows.
Sluggish household spending saw Indonesia's growth weaken in the first quarter, while the outlook for subsequent quarters has been clouded by the impact of U.S. tariffs on global trade.
In its easing cycle since September, BI had taken pauses in between rate cuts to try to head off volatility in the rupiah triggered by Trump's trade policies and geopolitical tensions, even as Indonesia's inflation remained muted.
The rupiah, which has been rangebound so far this month, barely moved after BI's announcement, while the main stock index extended gains to trade almost 1 per cent up.
Brokerage Mandiri Sekuritas expects another 25-bp cut this year and 50-bp more in the first quarter of 2026 to counter weakening economic activity, its economist Rangga Cipta said.