In a strategic move underscoring its commitment to driving national economic growth, Bank Indonesia (BI) decided to cut its benchmark interest rate (BI Rate) by 25 basis points to 5.75 percent. This decision, made during the Board of Governors Meeting (RDG) held on January 14-15, 2025, reflects the central bank’s effort to stimulate greater credit expansion in the banking sector and bolster economic recovery.
Bank Indonesia Governor Perry Warjiyo expressed optimism that this policy would encourage banks to become more proactive in channeling credit to productive sectors. Speaking at a press conference following the RDG in Jakarta, Perry explained that the reduction in the benchmark interest rate would make lending more attractive for banks compared to investing in financial instruments such as Government Securities (SBN) or Bank Indonesia Rupiah Securities (SRBI). This move is expected to enhance economic momentum by promoting credit distribution.
According to Perry, banking credit growth in 2024 had already shown positive trends, recording an annual increase of 10.39 percent (year-on-year/yoy). The central bank has projected that credit growth in 2025 could rise further to a range of 11 to 13 percent, supported by accommodative monetary policies and reinforced macroprudential stimulus. This rate cut is anticipated to provide direct benefits to key sectors such as property, automotive, and micro, small, and medium enterprises (MSMEs).
The move is further backed by liquidity incentives introduced by Bank Indonesia through the Macroprudential Liquidity Incentive Policy (KLM). By mid-January 2025, the total liquidity incentives disbursed had reached IDR 295 trillion, a significant increase from IDR 259 trillion at the end of October 2024. These incentives enable banks to broaden their credit portfolios, delivering direct advantages to the domestic economy.
Data from Bank Indonesia highlights solid performance in credit growth across various usage groups. Working capital loans grew by 8.35 percent annually, investment loans increased by 13.62 percent, and consumer loans rose by 10.61 percent. Meanwhile, Sharia-compliant financing also demonstrated positive development with a growth rate of 9.87 percent, and loans for MSMEs saw an increase of 3.37 percent. These figures reflect growing economic activity across sectors, bolstered by synergistic monetary and fiscal policies.
Nevertheless, banking expert Arianto Muditomo has cautioned about potential risks that need to be addressed. The reduction in the BI Rate could diminish the attractiveness of rupiah-based assets, particularly for foreign investors, thereby raising the likelihood of capital outflows. Additionally, the weakening of the rupiah against the US dollar could exert upward pressure on import inflation, a challenge that must be met with measured policies.
Amid these challenges, Bank Indonesia is expected to maintain a balance between fostering economic growth and ensuring exchange rate stability. Market interventions and strengthening foreign exchange reserves are essential steps to sustain investor confidence and prevent turbulence in the financial market.
This BI Rate reduction underscores a tangible effort to accelerate national economic progress. With lower borrowing costs, productive sectors such as property and MSMEs are expected to enhance their contributions to economic growth. The move reaffirms the strategic role of Bank Indonesia in navigating the dynamic global and domestic economic landscape.
