October 23, 2025 | 12:37 pm
TEMPO.CO, Jakarta - Bank Indonesia (BI) believes there is still room to lower its benchmark interest rate, citing low inflation and the need to support economic growth.
Since the start of 2025, the central bank has cut its benchmark interest rate five times. However, during the BI Board of Governors Meeting on October 21-22, 2025, the BI-Rate was kept steady at 4.75 percent.
BI Governor Perry Warjiyo said that subdued inflation provides space for potential future cuts. “Inflation this year and next year remains low, especially core inflation, which is stable within the 2.5 percent ±1 percent range,” Perry said in a virtual press conference on Wednesday, October 22, 2025.
Perry added that the second consideration for further easing is the government’s ongoing effort, together with BI, to stimulate economic growth, which he said is still below the country’s potential output.
Indonesia’s economy grew 5.12 percent in the second quarter of 2025. Perry also referred to Finance Minister Purbaya Yudhi Sadewa’s policy of increasing liquidity by placing state funds in commercial banks. BI, he said, continues to support growth through liquidity expansion and macroprudential liquidity incentive programs.
“Our focus now is on strengthening the effectiveness of the interest rate cut transmission,” Perry said. “The challenge lies in how deposit and lending rates are still adjusting slowly.”
Since September 2024, BI has reduced the benchmark rate by 150 basis points. Yet, the transmission has been sluggish. The one-month deposit rate fell by only 29 bps, from 4.81 percent in early 2025 to 4.52 percent in September 2025.
Meanwhile, the average lending rate declined by just 15 bps, from 9.20 percent to 9.05 percent over the same period.
To accelerate credit distribution and strengthen rate-cut transmission, BI plans to provide new liquidity incentives to the banking sector. These will be granted based on two commitments:
The bank’s pledge to channel financing to specific priority sectors (lending channel).
The bank’s commitment to lower lending rates (interest rate channel).
Banks can receive incentives of up to 5 percent of Third Party Funds (TPF) for the lending channel and up to 0.5 percent of TPF for the interest rate channel, amounting to a total of 5.5 percent of TPF.
The new policy will take effect on December 1, 2025.
BI Deputy Governor Juda Agung explained that the lending channel incentive differs from previous schemes because it is forward-looking.
“Previously, incentives were backward-looking, given after realization. Now, banks that commit in advance to future lending will receive the incentive,” Juda said.
He added that banks failing to meet their commitments will face penalties. For the interest rate channel, the faster a bank reduces its lending rate, the greater the liquidity incentive it will receive.
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