Indonesia: Central Bank unexpectedly cuts interest rates in September
BI catches market off-guard: At its meeting on 17 September, Bank Indonesia (BI) decided to lower the BI-Rate by 25 basis points to 4.75%. Economists had expected a pause. The BI has now reduced the BI-Rate by a cumulative 150 basis points over the past 12 months.
Focus switches to GDP growth: The decision comes as lawmakers moot changing Bank Indonesia’s mandate, with it expected to bear some of the debt costs of the President’s wide-ranging housing and cooperative programs; lower interest rates will make it cheaper for the government to borrow.
The decision also signals that the BI has shifted its focus away from supporting the currency—which depreciated sharply earlier this year, but which has since stabilized—toward supporting economic growth.
In terms of inflation, the BI said it expects inflation to remain within its 1.5–3.5% target this year and next, giving it room to ease rates.
Another 25 basis point cut projected in Q4: The Central Bank said it will watch future exchange rate, GDP and inflation data ahead to see if there is room to cut the BI-Rate further. Our panelists project the BI to make another 25 basis point cut by the end of this year, and then another final same-sized reduction in 2026.
The BI will announce its next rate decision on 22 October.