Another BI Rate Cut: Supportive, Yet Measured
Bank Indonesia cuts rates to 5.25%, signaling a pro-growth shift amid easing inflation and softening growth. What it means for markets and investors.
Bank Indonesia delivered its third rate cut of the year, lowering the benchmark rate by 25 bps to 5.25% at the July meeting. The move surprised many, as market expectations leaned toward a pause. However, with inflation well-contained, the Rupiah relatively stable, and early signs of domestic growth softening, BI saw room to act.
The signals are clear: the central bank is leaning more decisively into its pro-growth stance. Manufacturing has remained in contraction for three consecutive months, and consumer confidence has fallen to a year-low. Meanwhile, external pressures (particularly from the U.S. on the trade front) have eased slightly, giving BI some space to stimulate without putting immediate pressure on the currency.
Simpan Views
Lower rates are broadly supportive for investors: easing funding costs, improving liquidity, and creating favorable conditions for equities and bonds. Sectors like property, consumer, and banking may see renewed interest, while government bond (SUN) yields are likely to drift lower.
However, the narrowing rate gap with the Fed limits how far BI can go. Further easing is possible, but the central bank will likely proceed with caution to avoid capital outflows and currency pressure. The tone remains pro-growth, but the window for additional cuts is narrowing.
Our Positioning & Strategy
This environment reinforces the importance of being active and selective across both equity and fixed-income portfolios.
Here’s how we’re positioning our strategy:
Fixed Income: We’re staying nimble by selectively extending duration where the risk-return profile is attractive.
Equities: We’re focused on high-quality stocks that stand to benefit from easier monetary policy and a recovering domestic economy. With a stable macro backdrop and strong local investor participation, we continue to see upside in Indonesian equities. Our Sustainable Equity Fund is well-positioned to capture this growth responsibly and over the long term.