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Indonesia’s Interest Rate Cuts: A Missed Opportunity for Growth
Indonesia's recent interest rate cuts have not spurred the economic growth expected. This analysis examines why and what it means for the future.
Indonesia — October 24 — Indonesia’s recent decision to cut interest rates has not yielded the anticipated economic growth, raising questions about the effectiveness of its monetary policy. As the central bank continues to adjust its rate strategy, the broader implications for small businesses and the economy at large are becoming increasingly apparent.
This lack of growth following rate cuts matters significantly as it reflects the challenges facing Indonesia’s economy, particularly in the context of global economic uncertainties. According to a report by the Bank of Indonesia, the economy grew by only 5.02% in Q3 2025, a deceleration from previous quarters, which highlights that simply lowering rates may not address underlying structural issues within the economy.
Despite the central bank’s efforts, including a 0.5% reduction in the benchmark interest rate, the expected boost in consumer spending and business investment has not materialized. Economists suggest that external factors, such as rising inflation and global supply chain disruptions, are exacerbating the situation. The World Bank noted that inflation in Indonesia reached 5.5% in September 2025, a significant increase from earlier in the year, which has dampened consumer confidence and spending.
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Read More →Moreover, the International Monetary Fund (IMF) has projected Indonesia’s GDP growth to remain below the government’s target of 6% for 2025, indicating a broader systemic issue beyond just interest rates. According to the IMF, economic growth in Indonesia is expected to stabilize around 5.4% in 2026, suggesting that without comprehensive reforms, the nation may struggle to achieve sustainable growth.
Despite the central bank’s efforts, including a 0.5% reduction in the benchmark interest rate, the expected boost in consumer spending and business investment has not materialized.
Dr. Kecik Saripudin, an economist at the Indonesian Institute of Sciences, stated, “The current rate cuts have not addressed the fundamental issues such as infrastructure deficits and regulatory challenges facing small businesses.” Such issues are critical as they directly influence the ability of businesses to thrive and innovate.
Additionally, the Indonesian government has been attempting to stimulate growth through various initiatives, including the recent introduction of tax incentives aimed at small and medium enterprises (SMEs). However, the effectiveness of these measures is still under scrutiny, as many SMEs continue to face financing challenges and limited access to markets.
As Indonesia navigates these economic challenges, the focus on improving financial literacy and access to credit will be crucial for empowering small businesses. According to a recent report from the Asian Development Bank, only 36% of Indonesian adults have access to formal financial services, highlighting a significant gap that needs to be addressed to stimulate economic growth effectively.
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Read More →On a more positive note, there is a growing recognition within the government and financial institutions of the need for a more inclusive approach to economic policies. Initiatives aimed at enhancing digital financial services and improving infrastructure are gaining traction, which could help in fostering a more conducive environment for business growth.
However, there are alternative perspectives on the effectiveness of rate cuts. Some analysts argue that such monetary policy should be complemented with fiscal measures to create a more robust economic framework. According to the Ministry of Finance, targeted public spending on infrastructure and social programs may yield better results in stimulating growth than rate cuts alone.
According to a recent report from the Asian Development Bank, only 36% of Indonesian adults have access to formal financial services, highlighting a significant gap that needs to be addressed to stimulate economic growth effectively.
Looking ahead, Indonesia’s monetary policy will need to adapt to the evolving economic landscape. Policymakers must consider a multifaceted approach that not only includes interest rate adjustments but also addresses structural issues, such as access to finance and regulatory burdens, that hinder small business growth. The success of these strategies will be critical in determining whether Indonesia can achieve its long-term economic goals and enhance its position in the global market.
