Indonesia’s monetary landscape is showing signs of resilience as Bank Indonesia reports a steady uptick in broad money supply (M2) growth. The July 2025 figure of 6.5% year-on-year reflects a cautiously optimistic liquidity environment, supported by foreign asset expansion and targeted monetary incentives. As credit growth softens, the composition and drivers of liquidity offer critical clues to the economy’s underlying momentum.
Key Facts & Background
- M2 Growth:
- July 2025: 6.5% YoY → Rp9,569.7 trillion
- June 2025: 6.4% YoY
- Components of M2:
- Narrow money (M1): 8.7% YoY
- Quasi money: 4.8% YoY
- Drivers of M2 Expansion:
- Net foreign assets: 7.3% YoY → Rp2,004.1 trillion
- Net claims on central government: contracted 6.2% YoY (less severe than June’s 8.2%)
- Credit Growth:
- July 2025: 6.6% YoY (down from 7.6% in June)
- Includes only domestic loans; excludes securities, repos, and offshore lending
- Primary Money (M0) Adjusted:
- July 2025: 7.0% YoY → Rp1,925.4 trillion
- Driven by:
- Currency in circulation: 9.7% YoY
- Bank reserves at BI: 8.4% YoY
- Reflects impact of liquidity incentives and adjusted monetary controls
Strategic Insights
The July 2025 liquidity data from Bank Indonesia offers a nuanced snapshot of macroeconomic conditions: while headline M2 growth remains stable, its underlying composition reveals diverging trends in monetary dynamics. The robust expansion in net foreign assets suggests improving external confidence and capital inflows, likely buoyed by favorable trade balances and easing global financial conditions. This external liquidity cushion is particularly valuable amid softening domestic credit demand.
The contraction in net claims on the central government, though less severe than in June, signals a shift in fiscal-monetary interplay. Reduced reliance on central government financing may reflect improved revenue performance or tighter fiscal discipline, but it also implies that liquidity injections are increasingly sourced from market-based instruments and foreign channels.
Meanwhile, the deceleration in credit growth—down to 6.6% YoY—raises concerns about domestic demand. Despite ample liquidity, banks appear cautious in lending, possibly due to subdued business sentiment or rising credit risk. This disconnect between liquidity availability and credit transmission underscores the importance of macroprudential alignment: liquidity alone cannot stimulate growth without confidence and viable demand.
The growth in M0, especially currency in circulation and bank reserves, reflects Bank Indonesia’s accommodative stance. Liquidity incentives and adjusted monetary operations are clearly supporting short-term stability. However, the challenge lies in converting this liquidity into productive investment and consumption. If credit intermediation continues to lag, the economy risks entering a liquidity trap—where money supply grows but real activity stagnates.
Looking ahead, policymakers must ensure that liquidity expansion is matched by structural reforms that unlock lending channels. This includes improving credit access for SMEs, enhancing risk-sharing mechanisms, and deepening financial markets. Additionally, the resilience of net foreign assets must be safeguarded through prudent exchange rate management and continued investor confidence.
In sum, July’s M2 growth is a positive signal—but not a guarantee. It reflects a well-calibrated monetary response, yet its effectiveness hinges on broader economic coordination. For Indonesia to sustain momentum, liquidity must translate into real-sector dynamism, not just balance sheet expansion.