Indonesia's Central Bank Cuts Interest Rate to 5.25% in July 2025

Bank Indonesia (BI) cut its benchmark interest rate by 25 basis points (bps) to 5.25% in July 2025. The cut was implemented following a BI Board of Governors meeting held on July 15-16, 2025.

A 25 bps reduction was also applied to the deposit facility rate, bringing it to 4.5%, and the lending facility rate, to 6%.

In its official release, BI Governor Perry Warjiyo stated that this decision is consistent with the lower-than-expected inflation forecast for 2025 and 2026, targeting 2.5% plus or minus 1 percentage point, and the stability of the rupiah exchange rate. Furthermore, the interest rate cut aims to stimulate economic growth.

This decision is considered a timely, tactical, and prudent move amidst signs of economic slowdown, according to Senior Economist and Associate Faculty LPPI Ryan Kiryanto. In an interview with Katadata, Ryan stated that this could be a step to boost credit growth and the national economy.

"This decision is very forward-looking, especially in supporting economic recovery and strengthening when signs of weakening are already visible," said Ryan on Wednesday July 16, 2025.

Ryan referred to several indicators, such as the economic growth in Q1 2025, which was only 4.87%, and the projection of slowing global growth, including the IMF's estimate of 4.7%.

He also highlighted the manufacturing PMI index below 50, relatively controlled inflation, a downward trend in credit, and the ongoing layoffs.

According to Ryan, the stability of the rupiah exchange rate is a contributing factor that provides BI with room to ease monetary policy. He hopes this interest rate easing will encourage banks to gradually adjust credit and deposit interest rates.

"This step is expected to boost credit demand so that the real sector becomes more vibrant and can drive economic growth in the following quarters," he said.

He is optimistic that, with the projected credit growth of 9-11% this year, the Indonesian economy has the potential to grow in the range of 4.8%-5.0% in 2025.

(Read Katadata: BI Cuts Interest Rate to 5.25%, Economists Hope for Boost in Credit and Economy)