2025.08.2007:42:17UTC+00Indonesia Unexpectedly Cuts Key Rate by 25 Bps

In an unexpected move, Bank Indonesia reduced its benchmark interest rate by 25 basis points to 5.0% during its policy meeting in August 2025. This follows a similar reduction the previous month and goes against market forecasts that predicted rates would remain unchanged. This adjustment represents the fifth reduction since September of last year, bringing the benchmark rate to its lowest point since October 2022. The rationale behind this decision is based on projections that inflation for 2025–2026 will remain within the central bank's target of 2.5% ± 1%, a stable Rupiah, and continued support for economic growth. Recent statistics revealed a GDP growth rate of 5.12% year-over-year in the second quarter, marking the fastest pace in two years. At the same time, annual inflation increased to 2.37% in July from 1.87% in June, reaching a one-year high yet still aligning with the central bank's target range. Economic growth for 2025 is expected to slightly exceed the midpoint of the projected 4.6% to 5.4% range, around 5.1%. Additionally, the overnight deposit and lending facility rates were decreased by 25 basis points, setting them at 4.25% and 5.75%, respectively.