Bank Indonesia (BI) announced a surprise cut to its benchmark interest rate on Wednesday, lowering the 7-day reverse repurchase rate by 25 basis points to 5.00 percent. The reduction, decided during the Board of Governors Meeting on August 19–20, 2025, marks the fifth rate cut since September 2024 and the first time consecutive meetings have seen cuts. 

The central bank also reduced the overnight deposit and lending facility rates by 25 basis points to 4.25 percent and 5.75 percent, respectively. Only five of 29 economists polled by Reuters had anticipated a cut on Wednesday, with the majority expecting rates to remain unchanged. 

Governor Perry Warjiyo said the decision aligns with low inflation projections and a stable rupiah, while supporting economic growth. BI estimates Indonesia’s economic growth in 2025 will exceed the midpoint of the 4.6–5.4 percent range. Growth accelerated to 5.12 percent year-on-year in the second quarter, the fastest pace in two years, driven by household consumption and investment. 

Bank Indonesia cited global uncertainties, including reciprocal tariffs imposed by the United States since August 7, 2025, as factors in monetary policy considerations. The tariffs, affecting Indonesia alongside other Southeast Asian exporters, add potential headwinds to growth. 

The central bank highlighted ongoing efforts to strengthen macroprudential and payment system policies. Measures include promoting liquidity in money and banking markets through targeted government securities operations, facilitating foreign portfolio inflows, and supporting digital payment adoption, including cross-border QRIS initiatives with Japan and China. 

BI also reported that Indonesia’s external position remains strong. The trade surplus in June reached $4.1 billion, supported by exports of natural resources and manufactured goods. Portfolio inflows into government securities continued in July and August, while foreign exchange reserves remained high at $152 billion at the end of July, sufficient to cover 6.3 months of imports. 

Domestic financial conditions show stable banking sector fundamentals. The capital adequacy ratio stood at 25.81 percent in June, while non-performing loans were 2.22 percent gross and 0.84 percent net. Bank lending growth was 7.03 percent year-on-year in July, with investment loans rising 12.42 percent, while consumer and working capital loans grew at slower rates. 

Inflation remained low, with the Consumer Price Index recording 2.37 percent year-on-year in July, supported by controlled volatile food prices and declining administered prices. Core inflation was 2.32 percent. 

Following the rate cut, the rupiah remained largely unchanged against the U.S. dollar. BI indicated it will continue monitoring economic and financial developments, assessing the room for further policy adjustments to sustain growth while maintaining price and currency stability.