Bank Lending Rates Climb in Early 2025 — Will BI Rate Cuts Spark a Rebound?

🔺 BI Rate Cut Meets Stubborn Lending Rates

On May 21st, Bank Indonesia (BI) cut its benchmark rate by 25 basis points (bps) to 5.5%, aiming to stimulate lending. However, instead of easing, the average lending rate (SBDK) rose 12 bps to 9.25% in March 2025, with private banks posting the steepest hike — up 21 bps to 8.85%.

In April alone, new lending rates increased another 21 bps to reach 9.63%. This spike was observed across most banks, except state-owned (BUMN) banks, suggesting a systemic trend rather than isolated adjustments.

📉 Credit Growth Slows to Single Digits

Bank credit growth slowed significantly, rising only 8.8% in April. The rising interest burden is likely a key factor behind this deceleration, as high rates make borrowing less attractive for both businesses and consumers.

Efdi Alamsyah, Compliance Director at Bank OK, acknowledged that while the BI rate cut is a positive signal, the real economy is still struggling with tight liquidity and limited transmission of policy cuts.

🧩 Structural Constraints Remain

According to Alamsyah, although the BI rate cut may serve as an early catalyst, actual reductions in lending and deposit rates will depend heavily on:

• Liquidity conditions,

• Credit demand quality,

• Overall macroeconomic stability.

Echoing this, Bank Mandiri's Corporate Secretary, M Ashidiq Iswara, emphasized that any rate adjustments must also consider internal strategies and market dynamics — not just policy directions.

📈 Outlook for 2025: A Delicate Balancing Act

Despite the current headwinds, Bank Mandiri remains optimistic, targeting lending rate ranges of 10–12% for the remainder of 2025 — an approach aligned with efforts to support broader economic recovery.

While Bank Indonesia has acted decisively with its recent rate cut, the financial sector’s response remains muted. With credit growth stagnating and lending rates rising, stakeholders across banking and policy will need to collaborate closely to ensure the benefits of monetary easing reach the real economy.

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In the first four months of 2025, Indonesian banks have experienced a persistent rise in lending interest rates, driven by increasing funding and overhead costs. This trend continues despite Bank Indonesia's recent decision to cut its benchmark rate — a move intended to revive credit demand and spur economic activity.

So, what’s holding credit growth back?