BI Rate Cut Prospects Remain Open Despite Limited Room

Economic Context and Recent Developments

The space for Bank Indonesia (BI) to cut its benchmark interest rate, or BI Rate, is narrowing, according to PT Bank CIMB Niaga Tbk. (BNGA) economist Mika Martumpal. The current spread between the BI Rate and domestic inflation stands at 200-225 basis points, limiting additional monetary easing. Despite this constraint, Mika suggests that further rate cuts remain on the table, contingent on specific economic conditions.

Recent Monetary Policy Actions

Throughout 2025, BI has implemented significant monetary policy easing. The BI Rate has been reduced by 150 basis points, with a 25 basis point cut in September 2024 and an additional 125 basis points in 2025, bringing the rate to its current 4.75% level - the lowest since 2022. Concurrently, the central bank's monetary instrument, Sekuritas Rupiah Bank Indonesia (SRBI), has seen its value decrease from Rp916.97 trillion at the start of 2025 to Rp699.30 trillion as of November 17, 2025.

Economic Impact of Rate Cuts

Mika noted that these measures have successfully enhanced domestic liquidity and reduced banking interest expenses. The lighter funding burden is expected to foster better credit growth. When combined with government fiscal stimulus, these factors should boost consumer and business confidence, potentially accelerating national economic activity.

Future Monetary Policy Prospects

While the window for further rate cuts is narrowing, Mika believes that a potential December 2025 rate reduction remains possible if the USDIDR exchange rate meets the threshold of falling below 16,500. This condition highlights the delicate balance BI must maintain between supporting economic growth and ensuring currency stability.

Bank Indonesia's Latest Policy Decision

In its November 2025 Monthly Board of Governors Meeting, BI decided to maintain the BI Rate at 4.75%, with the Deposit Facility rate at 3.75% and the Lending Facility rate at 5.50%. Governor Perry Warjiyo emphasized that this decision aligns with the short-term policy focus on stabilizing the rupiah exchange rate and attracting foreign portfolio investment amid heightened global uncertainty.

Forward-Looking Statement

Warjiyo also noted that BI will continue to monitor the potential for further BI Rate reductions, supported by inflation projections for 2025 and 2026 remaining within the target range of 2.5±1%. The central bank's dual focus on maintaining price stability while supporting economic growth remains the guiding principle for future monetary policy decisions.