Archive

Indonesia’s Surprise Summer Rate Cut

• Bank Indonesia’s surprise 25bps cut to 5.00% signals proactive easing amid subdued inflation and global uncertainty.
• The Rupiah’s strength and solid capital inflows provide policy space to support domestic growth despite external risks.
• Further cuts are likely this year, contingent on exchange rate stability, fiscal support, and global economic developments.

Indonesia: 25bp Rate Cut To 5.25% (Consensus 5.25%) in Jul-25

• Bank Indonesia cut its benchmark rate by 25bp to 5.25% in July 2025, marking the fourth easing since September amid low inflation and strong foreign exchange reserves.
• The decision reflects confidence in 1.87% June inflation staying within the 2.5±1% target range, the stable rupiah supported by a robust intervention framework, and the need for growth stimulus.
• Future easing depends on continued inflation anchoring, currency stability, and global developments, including US trade policy and Federal Reserve actions affecting capital flows.

Indonesia: Policy Rate Held At 5.5% (Consensus 5.5%) in Jun-25

• Bank Indonesia maintained the BI-Rate at 5.50% in June 2025, in line with consensus expectations, citing stable inflation and a resilient rupiah as key factors.
• The decision reflects a cautious approach amid persistent global uncertainties, with BI emphasising the need to preserve macroeconomic stability while supporting growth through accommodative macroprudential and payment system policies.
• The interest rate outlook remains data-dependent, with the central bank signalling potential for further easing if inflation and currency stability persist, but maintaining a prudent stance given external risks and the need to attract foreign capital.

Trade Avoidance Easing Shocks

• China’s crashing exports to the US partly reflect avoidance measures, including rerouting through other countries and marking down import prices to subsidiaries.
• Exports to the EU and UK are only trending slightly higher, making little difference to disinflation. ASEAN countries, and especially Vietnam, are seeing trade surge again.
• The US may clamp down on avoidance measures that have eased the shock so far. It could make a painful example of one to encourage concessions from all trade partners.

By Philip Rush