Depth report

　　

JAKARTA, August 20th, 2023 (Reporter Li Zhiquan) - The largest economy in Southeast Asia, Indonesia, has cut its benchmark interest rate four times this year. On the 20th, the Central Bank of Indonesia announced that it would lower the benchmark interest rate by 25 basis points from 5.25% to 5%.

According to the resolution of the Central Bank of Indonesia's Council, the deposit interest rate was simultaneously lowered from 4.5% to 4.25%, and the loan interest rate was reduced from 6.0% to 5.75%. This is the fourth interest rate cut by the Central Bank of Indonesia this year, which was unexpected by the market.

Perry Wajio, the governor of the Central Bank of Indonesia, stated at the press conference on the same day that this interest rate cut is in line with the central bank's expectation of maintaining inflation at 2.5% ± 1% in 2025 and 2026, which will help stabilize the Indonesian rupiah exchange rate and promote economic growth.

In January, May, and July this year, the Central Bank of Indonesia has cut the benchmark interest rate by 25 basis points each time. Regarding whether it will cut the interest rate again within this month, there are significant differences in market expectations. Most institutions previously believed that the bank would keep the interest rate unchanged.

After the interest rate cut announcement, the Indonesian stock market responded positively, with the benchmark index rising by more than 1%. Market funds showed an inflow trend.

According to data from the Central Statistics Agency of Indonesia, in the second quarter of 2025, Indonesia's gross domestic product (GDP) grew by 5.12%, returning to a growth level above 5%. In the first half of the year, Indonesia achieved a trade surplus of 19.48 billion US dollars, an increase of 25%.

The Central Bank of Indonesia remains optimistic about economic growth in the second half of the year, believing that export performance and domestic consumption will be the main supports.

Indonesian President Prabowo submitted the first government budget to the parliament last week, setting the economic growth target for 2026 at 5.4% and the inflation rate at 2.5%.

Perry Wajio stated that in the current global economic pressure, Indonesia needs to reserve policy space for higher economic growth. The central bank will continue to monitor the possibility of further interest rate cuts to promote higher levels of growth.

Citibank (Indonesia) believes that despite challenges, Indonesia still has the feasibility to achieve the 5.4% growth target in 2026.