Jakarta. Bank Indonesia lowered its benchmark interest rate by 25 basis points to 5 percent on Wednesday, its fourth reduction this year and the lowest level in 2025.

Governor Perry Warjiyo said the decision was supported by subdued inflation, a stable rupiah, and the need to protect economic momentum amid weakening global trade. “The decision is consistent with our forecast that inflation will remain within the 2.5 percent target in 2025 and 2026,” Perry said, adding that policy space for further easing remains open “with prudence.”

The central bank also trimmed the deposit facility rate to 4.25 percent and the lending facility rate to 5.75 percent.

While Indonesia posted stronger-than-expected GDP growth in the second quarter at 5.12 percent, moderating loan demand has emerged as a risk. Loan growth eased to 7.03 percent in July from 7.77 percent a month earlier, the slowest pace in more than three years. In contrast, deposit growth accelerated.

“Since the unexpected rate cut in July, BI has clearly pivoted toward growth support,” BRI Danareksa Sekuritas analyst Helmy Kristanto wrote in a note. He said the latest move reinforces expectations that BI may lower the policy rate further, possibly to 4.75 percent by year-end, in a bid to stimulate credit expansion.

The easing cycle --125 basis points over the past 12 months-- now mirrors Indonesia’s pandemic-era and 2016 cycles, even as growth data remain solid. A recent banking survey also suggested lenders are not expanding credit appetite in the third quarter, amplifying the case for additional rate support.

Global Backdrop

The rate move comes as BI forecasts global growth to slip below 3 percent in 2025, citing the US government’s expansion of reciprocal tariffs from 44 to 70 countries. Perry warned that higher trade barriers will drag on export volumes, with India seen as particularly vulnerable to US tariff pressures, while Europe, Japan, and China may benefit from fiscal measures and softer tariff terms.

According to Perry, the reciprocal tariffs will ultimately burden the American public itself, as the cost of imported goods entering the US becomes more expensive. The resulting US economic slowdown could eventually have widespread repercussions on the global economy.

“Overall, the trend of global economic growth will decline,” Perry said

Deputy Governor Aida S. Budiman said BI has revised down its US growth outlook to 2 percent from 2.1 percent, while India was cut to 6.5 percent from 6.6 percent. Europe, Japan, and China saw modest upward adjustments, though still reflecting subdued recoveries.

“All of this has led BI to assess that global economic growth in 2025 is likely to come in lower than previously projected, at around 3 percent,” Aida said.