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Government’s Economic Response: BI Cuts Interest Rate and Indonesia Signs Trade Deal with the EU

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Thursday, September 18, 2025 | 13:47 WIB
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Government’s Economic Response: BI Cuts Interest Rate and Indonesia Signs Trade Deal with the EU
Volatility in Indonesia’s economy continues to unfold as the government and markets move in tandem with ongoing global shifts. Several major issues have come to the forefront, including the signing of a trade deal with the European Union, a policy decision to cut the benchmark interest rate, and protests from the tobacco industry against the planned excise tax hike.


To stimulate economic growth, the Indonesian government has taken comprehensive strategic steps. Bank Indonesia (BI) cut the benchmark interest rate (BI-Rate) by 25 basis points to 4.75%. BI expressed optimism that this move, supported by improving global economic conditions, will drive stronger growth in the second half of 2025. In line with this, the President instructed that subsidized mortgage (KPR) interest rates remain at 5%, in an effort to safeguard household purchasing power and boost the property sector.


In trade policy, the government made a significant breakthrough by signing the Comprehensive Economic Partnership Agreement (CEPA) with the European Union. The agreement will lift import tariffs on 80% of Indonesian products, a move expected to boost exports and strengthen the country’s competitiveness in global markets.


Amid these positive steps, the government also faces mounting pressure from the tobacco industry. Industry players have urged the government to delay the planned excise tax increase, citing already heavy burdens from competition and high production costs. This demand highlights the government’s challenge to balance between increasing state revenue and maintaining the sustainability of a labor-intensive industry.


Recent policy actions provide a clear picture of the government’s focus in navigating economic challenges. The signing of CEPA represents a strategic move to open new markets and accelerate export growth. Meanwhile, monetary policy through the BI rate cut—coupled with direct intervention in subsidized mortgage rates—underscores the administration’s push to stimulate domestic consumption and the property sector. On the other hand, calls from the tobacco industry to delay excise hikes illustrate the fiscal dilemma: ensuring revenue growth while safeguarding strategic industries and employment.


These developments underscore the government’s need to carefully balance growth and stability. The BI rate cut and the EU trade deal are proactive measures aimed at stimulating economic expansion. However, the challenges facing the tobacco industry show that fiscal tools like excise policy must be carefully calibrated to avoid undermining industry viability and jobs. The government’s success will ultimately be measured by its ability to harmonize monetary and fiscal policies to achieve sustainable and inclusive economic growth.



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