Bank Indonesia (BI) cut its benchmark interest rate five times throughout 2025, for a cumulative reduction of 125 basis points — yet the transmission of this easing cycle to bank lending rates has remained notably limited. Despite the aggressive rate cuts, lending rates had only declined by 24 basis points to 8.96% as of November 2025. The growing gap between the central bank’s policy direction and actual borrowing costs in the economy has prompted BI Governor Perry Warjiyo to publicly press commercial banks to accelerate their rate adjustments.
Key Facts & Background
- BI’s benchmark rate fell from 6.00% at the start of 2025 to 4.75% by October 2025 — a reduction of 125 bps — while lending rates moved only from 9.20% to 9.05% over the same period.
- By January 2026, lending rates had fallen just 40 bps since the start of 2025, to 8.80%, whereas BI Rate had been cut by 125 bps during 2025. Newly issued lending rates, however, dropped more sharply — down 75 bps.
- One-month deposit rates fell 67 bps from 4.81% at the start of 2025 to 4.14% by November 2025, itself well behind the pace of benchmark rate cuts.
- A key structural drag is the prevalence of special rates offered to large depositors, which account for approximately 26% of total third-party funds held by banks.
- Money market instruments responded far more rapidly: the INDONIA overnight rate dropped 203 bps to 4.00%, and SRBI securities across the 6-, 9-, and 12-month tenors each fell by more than 250 bps.
- Since September 2025, the government placed Rp 276 trillion in surplus budget funds (SAL) into the domestic banking system to boost liquidity, yet credit lending rates have remained sticky.
- Bank credit growth reached approximately 9.96% YoY in January 2026, within BI’s 2026 target range of 8–12% YoY, with investment credit growing notably faster at 22.38% YoY.
- BI strengthened its Macroprudential Liquidity Incentive Policy (KLM) from December 16, 2025, providing additional liquidity incentives to banks that more rapidly reduce new lending rates in line with BI’s policy direction.
Note: Multi-source, mostly from BI, AI data analytics, acknowledging the possibility of inaccuracies.
Insights
Bank Indonesia’s 2025 rate cuts highlight a common problem: monetary easing works fast in financial markets, but much slower for everyday borrowers. Yields on INDONIA and SRBI dropped by more than 200 basis points, yet lending rates for households and businesses only fell 24–40 basis points after a 125 bps cut in the BI Rate. That means less than one‑third of the easing reached the real economy.
This weak transmission raises questions about how banks set loan prices, the level of competition, and their cost structures. A big factor is special deposit rates, which cover about a quarter of bank funding. These rates act like a floor, keeping deposit costs high and limiting banks’ ability to lower lending rates. BI has stepped up pressure through public statements, coordination with the KSSK, and new incentive schemes. But the central bank still lacks a direct tool to force banks to cut rates without risking side effects like deposit flight or weaker credit quality.
For borrowers, the bottom line is clear: the relief promised by monetary easing hasn’t fully arrived. That limits the boost to household spending, SME financing, and investment — all of which are crucial for Indonesia’s growth heading into 2026.