Bank Indonesia Expected to Cut Key Interest Rate to 4.50% Amid Growth Concerns

Bank Indonesia (BI) is expected to reduce its benchmark interest rate for the fourth consecutive time on Wednesday, bringing it down to 4.50%, as policymakers shift focus toward supporting economic growth despite persistent rupiah weakness. According to a Reuters poll of 28 economists, 21 anticipate a 25-basis-point cut, while the remaining seven forecast no change from 4.75%.

The move follows BI’s surprise rate cut last month, when Governor Perry Warjiyo vowed to go “all out” in bolstering growth while safeguarding market stability. Although the rupiah has regained some strength due to central bank intervention, it remains about 3% weaker year-to-date. With inflation stable at 2.65%, within the 1.5%-3.5% target range, economists believe BI has room for further monetary easing.

Economic data points to slowing domestic demand, even as second-quarter growth surpassed expectations. Declines in vehicle sales, weaker consumer confidence, and sluggish export growth have heightened concerns over the country’s economic momentum. Capital Economics’ Jason Tuvey noted that BI officials appear increasingly focused on growth, expecting another 25-basis-point reduction.

Analysts predict the key rate could fall to 4.25% by year-end and remain unchanged through 2026. Oxford Economics’ Adam Ahmad Samdin said BI may tolerate mild rupiah weakness in favor of easing, suggesting there is still room for rates to move lower.

However, economists also warned about potential threats to BI’s independence, citing recent burden-sharing agreements and proposed legislation expanding parliamentary oversight. Tuvey cautioned that excessive easing could risk overheating the economy, leading to higher inflation and weaker long-term growth.

Indonesia’s economy is forecast to grow around 5% annually through 2027, below President Prabowo Subianto’s 8% target, while inflation is expected to average 1.8% this year and rise modestly to 2.5% by 2026–2027.