Bank Indonesia lowered the benchmark seven-day reverse repurchase rate by 25 basis points to 5%, citing a need to bolster stability and growth.

“This decision is consistent with the continued low inflation forecast for 2025 and 2026… the maintained stability of the rupiah, and the need to promote economic growth in line with the economy’s capacity,” said Bank Indonesia governor Perry Warjiyo.

“The low inflation will give room for more interest rate cuts,” he said.

It was the fifth cut since September, despite economist predictions the central bank would hold this time around, and the lowest rate since late 2022.

It comes after Indonesia recorded positive second quarter (Q2) economic results of more than 5% growth after Prabowo’s government set an ambitious goal of 8% when he took office last year.

He lauded the figure in his first state of the nation speech last week.

Bank Indonesia had projected at the start of the year that economic growth would be slower in 2025 compared to last year.

London-based business research centre, Capital Economics, called the move a surprise but said more rate cuts could be expected.

“With inflation subdued and GDP growth likely to slow, we think there’s scope for more easing over the rest of this year,” wrote Capital Economics’ Jason Tuvey in a note.

“We now expect rates to be lowered to 4.50% by year-end,” Tuvey added.