Economist: BI Rate Decrease to 5.50 Percent Ineffective for Economic Growth

TEMPO.CO, Jakarta - Senior economist at Bright Institute, Awalil Rizky, said that Bank Indonesia's decision to cut the benchmark interest rate or BI rate to 5.50 percent is not very effective in boosting economic growth. He argued that BI's move to cut interest rates is more towards a strategy to maintain stability.

According to Awalil, the 25 basis point (bps) reduction from the previous 5.75 percent is considered too small, although it could act as a stimulus to increase liquidity. The transmission of monetary policy did not take place quickly. "For example, the response to the reduction in bank loan interest rates often takes quite a long time or is not immediate," he told Tempo on Sunday, May 25, 2025.

Furthermore, Awalil said that currently the growth of public deposits or Third Party Funds (DPK) is slowing down. This condition will be a consideration for banks in lowering loan interest rates.

Additionally, the decrease in the BI rate may not be very significant in influencing the interbank money market interest rate (PUAB), yield of Government Securities, and yield of Indonesian Rupiah Securities (SRBI). "If the range of values is still quite high, for example in the range of 100 bps or more, then the BI interest rate is more of a formality than being able to be a market benchmark," said Awalil.

In the Board of Governors Meeting in May 2025, BI decided to cut the benchmark interest rate by 25 basis points to 5.50 percent. "The considerations are low inflation, maintained stability of the rupiah exchange rate, and contributing to economic growth," said BI Governor Perry Warjiyo in a press conference on Wednesday, May 21, 2025.

Perry hopes that the decision to cut the BI rate will also encourage banks to lower interest rates, thus increasing credit distribution. BI recorded credit growth in April 2025 at 8.8 percent annually. This figure is lower than the credit growth of 9.16 percent in March 2025.

Editor's Choice: Bank Indonesia Slashes Benchmark Interest Rate to 5.50%

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