Indonesia Macro Update - INF 02 Sep 2025
KBVS MACRO UPDATE
Tuesday, 2 September 2025
August Deflation Opens Room for Further BI Rate Cuts
Defying expectations, Indonesia recorded deflation of -0.08% MoM or 2.31% YoY in Aug ‘25 (Cons: +0.09% MoM or 2.49% YoY; KBVS: +0.17% MoM or 2.57% YoY; Prev: +0.30% MoM or 2.37% YoY), following monthly increases in June and July.
According to BPS, the commodities contributing most to the August deflation (MoM) included tomatoes, bird’s eye chili (Cabe Rawit), garlic, kale, chicken eggs, spinach, pork, airfares, gasoline, and senior high school tuition fees. By region, BPS reported monthly deflation in 26 provinces and 99 regencies/cities, while 12 provinces and 54 regencies/cities experienced inflation.
With both headline and core inflation still within Bank Indonesia’s target range (2.5% YoY, ±1%), we believe there is room for further BI Rate cuts, especially amid the increasingly dovish stance of the Federal Reserve and other major central banks. It could also boost consumer demand for durable goods, particularly automobiles, motorcycles, and housing.
That said, ongoing demonstrations across Indonesia highlight the need to maintain a conducive environment. Mitigating negative sentiment in the economy and financial markets will be essential in safeguarding positive expectations for both the real sector and financial markets going forward.
Regards,
KBVS Research Team