Bank Indonesia's Rate Cuts to Boost Economic Growth in 2026

Monetary Policy Shift

Bank Indonesia (BI) has implemented significant monetary easing in 2025, cutting its benchmark interest rate by 1.25 percentage points to 4.75%. This development was reported by Coordinating Minister for Economic Affairs Airlangga Hartarto during the Bank Indonesia Annual Meeting (PTBI) on November 28, 2025. The rate cuts represent a proactive measure to stimulate economic activity through lower borrowing costs.

Economic Rationale

The decision to lower interest rates was supported by controlled inflation, which stood at 2.86% year-on-year as of October 2025. Airlangga emphasized that this was within the target range, thanks to consistent monetary policy and fiscal incentives. The inflation control was attributed to the collaborative efforts of various government agencies, including the Regional Inflation Control Team (TPID), Ministry of Home Affairs, regional governments, Ministry of Finance, and BI.

Positive Economic Indicators

Several economic indicators suggest a positive outlook for 2026. Key highlights include:

• Mandiri Spending Index reached 312 in November 2025, indicating robust consumer spending
• Investment growth stood at 13.7% during January-September 2025, with realizations amounting to Rp1,434 trillion
• Government expenditure showed positive momentum, contributing to overall economic activity

Growth Projections

Airlangga expressed optimism that these factors would lead to better economic performance in 2026. The government is projecting 5.4% year-on-year GDP growth, as outlined in the State Budget (APBN). The minister noted that most risks were absorbed in 2025, with market factors such as interest rates, prices, and exchange rates already priced in.

Market Implications

The significant rate cuts are expected to have a positive impact on credit growth and consumer spending. Lower borrowing costs should stimulate business investment and household consumption, supporting overall economic expansion. The combination of accommodative monetary policy and controlled inflation creates a favorable environment for sustained economic growth.