Bank Indonesia (BI) has once again demonstrated its pivotal role as a key driver of national economic growth by reducing its benchmark interest rate (BI Rate) by 25 basis points to 5.75 percent. This decision, announced at the Board of Governors Meeting (RDG) in mid-January 2025, aims to stimulate greater credit growth in the banking sector while supporting broad-based economic recovery.
Governor of Bank Indonesia Perry Warjiyo stated that this move would not only strengthen banks’ capacity to extend credit but also directly impact increased consumption and investment. With lower interest rates, banks are expected to prefer allocating funds toward lending rather than investing in other instruments such as Government Securities (SBN) and Bank Indonesia Rupiah Securities (SRBI).
Perry elaborated that banking credit growth in 2024 had shown promising trends, achieving an annual increase of 10.39 percent (year-on-year/yoy). For 2025, Bank Indonesia projects credit growth to rise further within the 11 to 13 percent range, underpinned by accommodative monetary policies and strengthened macroprudential measures. The reduction in the BI Rate is expected to deliver substantial stimulus to key economic sectors, including property, automotive, and micro, small, and medium enterprises (MSMEs).
This policy is further supported by liquidity incentives distributed through Bank Indonesia’s Macroprudential Liquidity Incentive Policy (KLM). As of mid-January 2025, total liquidity incentives amounted to IDR 295 trillion, a notable increase compared to IDR 259 trillion recorded in late October 2024. This influx of liquidity enables banks to expand their credit allocation, creating direct benefits for the domestic economy.
The data provided by Bank Indonesia reveals robust credit growth across various segments. Working capital loans rose by 8.35 percent annually, investment loans surged by 13.62 percent, and consumer loans increased by 10.61 percent. Sharia-based financing also experienced a positive trend, growing by 9.87 percent, while loans to MSMEs expanded by 3.37 percent. These developments underscore the growing momentum across sectors, supported by coordinated efforts between monetary and fiscal policies.
However, financial analyst Arianto Muditomo highlighted the potential risks associated with this policy. The reduction in the BI Rate could make rupiah-based assets less attractive to foreign investors, potentially leading to capital outflows. Additionally, the weakening of the rupiah against the US dollar may pose challenges by increasing the risk of import-driven inflation, necessitating prudent measures to maintain economic stability.
In response to these challenges, Bank Indonesia is anticipated to adopt balanced strategies, ensuring that economic growth objectives are met while safeguarding exchange rate stability. Active market interventions and strengthening foreign reserves will be crucial in maintaining investor confidence and averting disruptions in financial markets.
This adjustment to the BI Rate reflects Bank Indonesia’s commitment to bolstering national economic progress. By reducing borrowing costs, sectors such as property and MSMEs are poised to play a more significant role in driving economic expansion. The move underscores the strategic importance of Bank Indonesia’s policies in adapting to and navigating the evolving global and domestic economic environments.