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Indonesia’s central bank, Bank Indonesia, announced its third interest rate cut this year on Wednesday, lowering its key seven-day reverse purchase rate by 25 basis points to 5.25 per cent.
Its two other main rates were similarly reduced. This move aims to stimulate growth in Southeast Asia’s largest economy, with Governor Perry Warjiyo indicating that further cuts remain possible depending on economic conditions.
Warjiyo stated that the decision aligns with a lower inflation forecast for 2025 and 2026, the stable rupiah exchange rate, and the ongoing need to boost economic growth.
The rupiah currency had faced pressure in the first half of the year, nearing its lowest levels since the Asian financial crisis due to broad tariffs imposed by US President Donald Trump.
However, Jakarta recently secured a trade deal with Washington on Tuesday, which will see a 19 per cent tariff on Indonesian goods, lower than the previously threatened 32 per cent, while US shipments will remain untaxed.
Analysts anticipate that the rate cut will lead to further depreciation of the rupiah against the dollar. They also predict that Bank Indonesia will continue to ease its monetary policy.
Jason Duvey, deputy chief emerging markets economist at Capital Economics, expects the rupiah to lose some ground in the coming months, suggesting another 25-basis-point rate cut this year.
