Tight liquidity and weak credit appetite slows Indonesia’s loan growth

The central bank may cut rates further to support liquidity.

Indonesia’s loan growth slowed in May 2025 on tight liquidity and weak credit appetite, according to UOB Kay Hian.

Loan growth during the month was 8.1% YoY, from 8.5% in April and 8.7% in March. Tight system liquidity constrained banks’ lending capacity.

Credit appetite from both borrowers and lenders also remained subdued on macroeconomic uncertainties.

Two things may impact lending in the near future: the expectation of rate cuts in the second half of the year, and acceleration of government spending.

UOBKH economists expect another round of 25 basis point rate cuts in H2 2025.

“The weak domestic growth and downward trend in loan growth highlight the need for Bank Indonesia (BI) to actively support liquidity,” said UOBKH analyst Posmarito Pakpahan.

Amidst slowing private consumption and investment, government spending is crucial to stimulate the economy, UOBKH said.

“With the revision in the state budget, we expect government spending to accelerate towards end-25,” Pakpahan wrote.