Bank Indonesia Cuts BI Rate to 5.5% to Support Growth, Eyes Global Tailwinds
Main Takeaways
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JAKARTA, Investortrust.id — Bank Indonesia has cut its benchmark interest rate by 25 basis points to 5.5%, marking its second rate reduction this year as inflation remains under control and global economic risks begin to ease.
Governor Bank Indonesia Perry Warjiyo announced the decision on Wednesday, May 21, following a two-day Board of Governors meeting. He said the rate cut is aimed at supporting sustainable economic growth while keeping inflation and exchange rate stability in check.
The central bank also lowered the deposit facility rate to 4.75% and the lending facility rate to 6.25%.
“This decision is consistent with our inflation outlook for 2025 and 2026, which remains within the target range of 2.5% ±1%. It also supports exchange rate stability in line with Indonesia’s economic fundamentals,” said Governor Perry during a press conference in Jakarta.
Improving Global Sentiment
The rate cut reflects Bank Indonesia’s view that global economic conditions are improving, with inflation risks easing and major central banks expected to begin monetary policy normalization later in the year.
Perry cited the recent 90-day tariff truce between the United States and China as a sign of easing geopolitical tensions, which lifted the global growth forecast for 2025 from 2.9% to 3%.
“This improves the outlook not just for the U.S. and China, but also for Japan, India, and parts of Europe,” he said, adding that expectations for a U.S. rate cut are strengthening due to a decline in inflationary pressures.
Local Conditions Allow Room to Ease
The move was broadly anticipated by analysts. Bank Mandiri Chief Economist Andry Asmoro previously projected the rate cut, arguing that stable rupiah performance this month gave the central bank a “perfect window” to ease monetary policy.
“The momentum is right, especially to help support Indonesia’s growth,” Andry said.
The rupiah has held steady, trading at Rp 16,404 per U.S. dollar on Wednesday morning, just before the BI announcement.
Still, global uncertainties remain. Andry noted rising concerns over the U.S. fiscal deficit and tensions in U.S.-China trade talks, despite the temporary truce. He also pointed to a shift in tone among Federal Reserve officials, who have signaled reluctance to ease rates soon.
“Fed policymakers are indicating a prolonged pause. They see current policy as adequate despite tariff-induced inflation risks,” he added.
Earlier this week, Moody’s downgraded the U.S. credit rating from Aaa to Aa1, citing concerns over rising public debt and expanding fiscal deficits, which may influence emerging markets' capital flows.