Global Conditions Begin to Improve, BI Cuts Interest Rate to 5.5% in May 2025

Bank Indonesia (BI) set its benchmark interest rate at 5.5% in May 2025, a 25 basis points (bps) cut from the April 2025 rate of 5.75%. This decision was made during the BI Board of Governors meeting held on May 20-21, 2025.

According to BI's press release, several benchmark interest rates were also lowered by 25 bps. The deposit facility rate became 4.75% and the lending facility rate became 6.25%.

BI Governor Perry Warjiyo revealed the factors behind the interest rate cut. The main influencing factor was the global economic condition.

“There is an agreement between the United States and China to lower import tariffs for 90 days. Of course, this is a positive indicator,” said Perry in an online press conference reported by *Katadata*, Wednesday (May 21, 2025).

Trade negotiations between the two countries are still ongoing. This signals that trade war tensions are beginning to ease. "So, there have been positive developments over the past month," he said.

The following are other reasons compiled by *Katadata*.

**Lower US Inflation Projections and Positive Signals from The Fed**

The second reason for the interest rate cut is that concerns about rising US inflation have subsided. In addition, BI also detected positive signals from the US central bank, the Federal Reserve (The Fed).

Perry predicted that the fed funds rate (FFR) will fall twice this year. "Around September once and in December," he said.

If that prediction materializes, he said there will be a shift in capital flows. "Not only to safe-haven countries but also starting to enter emerging markets, including Indonesia," said Perry.

**Easing Rupiah Pressure**

Perry revealed that the pressure on the exchange rate of several currencies against the US dollar is also beginning to ease. “We are continuously conducting domestic non-delivery forward (DNDF) interventions in overseas markets—Hong Kong, Europe, and America—24 hours a day, and this maintains stability,” said Perry.

However, he sees that global conditions remain uncertain. Because the agreement between the US and China is only temporary, for 90 days. The world still needs to be vigilant.

“BI will not hesitate to ensure that it maintains the stability of the rupiah exchange rate through DNDF interventions abroad and spot interventions, and the provision of SBN (government securities) domestically,” said Perry.

**Supporting Economic Growth**

Perry explained that the effort to lower the benchmark interest rate is also intended to boost Indonesia's economic growth. Especially since inflation is still low. “At the end of this year, we estimate that inflation will likely be around 2.6%. So this is low,” said Perry.

The central bank is also wary of economic growth because in the first quarter of 2025, the figure fell quarter-on-quarter, from 5.02% to 4.87%. Therefore, the government needs to boost economic growth considering low inflation and a stable exchange rate.

“And this is why we lowered the BI rate by 25 basis points,” said Perry.

(Read *Katadata*: [BI Governor Explains Reasons for Cutting Interest Rate to 5.5%](https://katadata.co.id/finansial/makro/682d9cb50b393/bos-bi-ungkap-alasan-pangkas-suku-bunga-jadi-5-5))