BI Is Predicted To Cut Reference Interest Rates To 5.50 Percent In May 2025

Illustration (Photo: Doc. ANTARA)

JAKARTA - Bank Permata economist Josua Pardede estimates that Bank Indonesia (BI) will consider lowering the benchmark interest rate (BI-rate) by 25 bps at the BI Board of Governors Meeting in May 2025 to 5.50 percent.

According to him, this estimate is supported by a combination of domestic and external factors, where from the domestic side, inflation remains under control as of April 2025, recorded at 1.95 percent year-on-year (yoy), in the range of Bank Indonesia's target of 1.5 percent to 3.5 percent.

"This provides sufficient space for more accommodative monetary policy. In addition, Indonesia's economic growth in the first quarter of 2025 slowed down to 4.87 percent year-on-year, thus requiring monetary easing to support aggregate demand," he told VOI, May 20.

Externally, he said that improving global conditions further strengthened arguments for more expansive policies.

According to him, Indonesia's external sector resilience is reflected in a continuing trade surplus, with the surplus in the first quarter of 2025 rising to 10.92 billion US dollars from 7.41 billion US dollars in the first quarter of 2024.

"This shows that the current account balance remains in a relatively stable position. Global sentiment also shows an increasing trend, supported by easing trade tensions," he said.

In addition, Josua also highlighted the results of recent US-China trade negotiations, leading to the mutual lifting of the return rates, from levels above 100 percent to 30 percent and 10 percent respectively, for a temporary period of 90 days.

He added that US inflation data, both in terms of supply/supply and demand, showed a downward trend, reinforcing arguments for the Fed to start cutting the policy interest rate of the FFR.

"This triggers risk-on sentiment in the global financial market, prompting capital flows into emerging markets, including Indonesia," he explained.

Josua said that foreign capital flows in the domestic financial market were reflected in the strengthening of the rupiah exchange rate by 0.98 percent mtd as of May 16, 2025, bringing the exchange rate below IDR 16,500 per US dollar.

Going forward, he said that if global uncertainty continues to subside and external conditions improve further, we expect a strategic shift in BI policy attitudes, from the current orientation of pro-stability towards a more pro-growth framework.

"As a result, we see room for cutting interest rates by 25 more basis points (bps) in the remainder of 2025, which has the potential to reduce BI interest rates to 5.25 percent," he said.