Bank Indonesia has lowered its policy rate by 25 basis points to 5.00%, marking a second consecutive surprise cut. While we had expected BI to hold off on further easing until the fourth quarter – given the recent strength in GDP and CPI data, as well as weak transmission to lending rates – the move signals BI’s increasing concern over the growth outlook.
The decision also suggests that BI is taking advantage of periods of Indonesian rupiah (IDR) strength to ease policy without risking currency instability. Despite headline inflation ticking higher, it remains well below BI’s upper target of 3.5%, giving the central bank room to act pre-emptively to support domestic demand.