Indonesia central bank chief sees room for another rate cut

Indonesia’s central bank governor said on Monday (Nov 3) there was still room for another interest rate cut, but the timing would depend on rupiah stability and the effectiveness of previous rate reductions in South-east Asia’s largest economy.

Bank Indonesia (BI) maintained its policy rate at 4.75 per cent late last month despite market expectations for a fourth straight cut. It said it would prioritise improving policy transmission, underscoring a tepid response to stimulus measures and slow credit uptake in the US$1.4 trillion economy.

“In terms of inflation and supporting economic growth, the answer is yes there’s room for further rate cuts,” BI governor Perry Warjiyo said at a press conference held by the Indonesia Stability Board in Jakarta. He did not give a timeframe for the cuts.

The annual inflation rate rose to 2.86 per cent in October, official data from the statistics bureau showed on Monday, above the 2.65 per cent median forecast by economists in a Reuters poll, but within the target range set by Bank Indonesia of 1.5 per cent to 3.5 per cent for 2025 and 2026.

BI has lowered its benchmark rate by 150 basis points since September last year at a time the government of President Prabowo Subianto is making a push to boost economic growth from around 5 per cent closer to his target of 8 per cent. Warjiyo said he believed Q3 2025 growth would be stronger than the 5.12 per cent registered in the previous quarter, and Q4 would be stronger still.

Indonesia will officially release its Q3 GDP data on Nov 5. Indonesia’s statistics bureau reported a trade surplus of US$4.34 billion in September, lower than the US$4.79 billion forecast by economists, as both exports and imports came in above expectations.

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Analysts predict a growth push by the government would lead to a narrowing of the trade balance as import growth outpaces exports.

“As the government advances its pro-growth agenda through investment-led initiatives, import activity is expected to gradually strengthen,” Bank Permata economist Faisal Rachman said in a note.

Rachman added the current account deficit was still projected to widen moderately to 0.81 per cent of gross domestic product in 2025, which should allow BI to sustain monetary easing.

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But Rachman highlighted the downside risk of imports rising sharply due to pro-growth initiatives.

Indonesian Finance Minister Purbaya Yudhi Sadewa, speaking alongside Warjiyo, said the government was maintaining its 5.2 per cent growth forecast for 2025. REUTERS