BRIDS Macro

Bank Indonesia Cut Rate by 25bps - Further Signs of Slowing Loan Growth

• Bank Indonesia (BI) lowered its policy rate by another 25 bps to 5.00%, bringing total cuts to 100 bps YTD (inline with our baseline forecast) and 125 bps over the past 12 months. Since the unexpected rate cut in July, we noted that BI has fully shifted to a pro-growth stance.
• Although the recent stronger-than-expected 2Q25 GDP release had initially raised expectations for a policy pause, further moderation of loan growth appears to be one of the key reasons for the rate cut.
• Loan growth slowed to 7.03% in July 2025 (from 7.77% in June), marking the lowest level in over three years. In contrast, Third-Party Fund (TPF) growth accelerated to 7.0% (from 6.6%), supported largely by higher fiscal spending.
• The pick-up in TPF, combined with stronger system liquidity, suggests that BI’s rate cuts will likely filter through to lower deposit rates more quickly going forward.
• BI expects core inflation to remain subdued for the next two years, providing space for additional easing. The current pace of 125 bps of cuts in 12 months mirrors both the Covid-era easing cycle and the 2016 moderation period, even as official data confirm solid growth in 2Q25.
• With the latest banking survey showing no increase in lending appetite in 3Q, the need for supply-side measures such as further rate cuts is reinforced. Under this setting, our optimistic case points to the BI rate reaching 4.75% by end-2025, as the central bank continues to push for lower lending rates and stronger credit growth.