BI Likely to Keep Rates Unchanged Amid Global Volatility
Bank Indonesia is expected to hold rates at 5.50% in June after two cuts earlier this year, opting for a pause amid global uncertainty. Subdued inflation and a stable rupiah provide policy space, but the central bank is likely to wait for clearer signals from the Fed. A fresh rate cut remains likely in Q3 as growth headwinds persist.
Bank Indonesia (BI) is expected to maintain its benchmark rate at 5.50% in its June monetary policy meeting, following two measured cuts earlier this year in January and May. While inflation remains well within the central bank’s comfort zone and the rupiah has stabilised, policymakers are likely to pause to assess the external backdrop and allow time for previous easing measures to filter through the economy.
The May rate cut was prompted by softer Q1 GDP growth—Indonesia’s economy expanded by just 4.87% yr/yr, the slowest pace since Q3 2021—and a modest rebound in the rupiah. Since then, inflation has remained subdued. Headline CPI eased to 1.60% y/y in May, well below the midpoint of BI’s 2.5±1% target band, while core inflation also decelerated to 2.40%. Price expectations are anchored, and food-related deflation has supported consumer purchasing power.
Exchange rate dynamics have also shifted in BI’s favour. The rupiah regained ground in May as global risk sentiment improved following a temporary US tariff reprieve. The currency’s depreciation year-to-date has narrowed to below 1%, returning to a USD/IDR range of 16,300–16,500. The central bank’s active use of foreign exchange intervention tools and SRBI issuances has bolstered portfolio inflows and sentiment.
Still, external uncertainties persist. The Federal Reserve's rate cut path remains unclear for now and BI will likely wait for greater clarity on global monetary trends before moving further. With the US as a key trading partner, Indonesia’s export outlook remains challenged by ongoing tariff negotiations and weak coal prices. Meanwhile, the April trade surplus narrowed sharply to USD 160mn—its smallest in five years—as imports surged and mining exports contracted. These developments reinforce the case for monetary accommodation later in the year.
We maintain our forecast that BI will resume rate cuts in Q3, potentially by another 25bps, should domestic demand falter and global conditions allow. For now, a prudent hold in June aligns with BI’s broader strategy: safeguarding macro stability while preserving flexibility to support growth if needed.