It’s been a pivotal week for central banks across Asia, as both China and Indonesia made headline-grabbing decisions on interest rates—though in very different directions, and with major implications for their economies, currencies, and investor confidence. While the People’s Bank of China (PBOC) opted for caution, holding rates steady for the fourth consecutive month, Bank Indonesia shocked markets with an unexpected rate cut, raising eyebrows about political influence and the future of the rupiah.
On Monday, September 22, 2025, the PBOC kept its one-year loan prime rate unchanged at 3.0% and the five-year rate at 3.5%. According to a statement from the central bank, these benchmark lending rates—normally offered to banks’ best clients—are recalculated monthly based on proposed rates from designated commercial banks. The move came just days after the U.S. Federal Reserve’s own rate cut, but China’s central bank stuck to its guns, resisting calls for further stimulus despite mounting evidence of economic fatigue.
“Beijing’s focus has shifted from risk management to growth stimulation, moving from tolerating deflation to reflating the economy,” said Hong Hao, managing partner and CIO at Lotus Asset Management, as quoted by CNBC. Hao added, “China has reached a point where it must stop inefficient, debt-fueled asset accumulation and begin reducing unproductive investments.” His comments underscore a growing consensus that while China’s policymakers are wary of flooding the economy with stimulus, some form of incremental easing may be on the horizon.
Indeed, economists expect the PBOC to roll out marginal monetary easing later in the year to ensure the world’s second-largest economy meets the government’s annual growth target of around 5%. Barclays, for example, forecasts China’s real GDP to grow 4.5% in 2025—a notable slowdown—while predicting that incremental policy support will arrive before year’s end. The bank expects the PBOC to cut both the seven-day reverse repo rate and the loan prime rate by 10 basis points in the fourth quarter, along with a 50-basis-point reduction in the reserve requirement ratio, which dictates how much cash banks must keep in reserve.
China’s decision to hold rates came against a backdrop of weakening economic data. As reported by CNBC, retail sales slowed to 3.4% in August, while industrial output growth eased to 5.2%—the weakest since August last year. Consumer prices fell more than expected, and deflation in wholesale prices has persisted for nearly three years. Even exports, which had been a rare bright spot, grew just 4.4% in August, marking their lowest rate since February. These figures point to a broad-based slowdown, exacerbated by a worsening real estate slump, fading fiscal stimulus, and regulatory crackdowns on industrial overcapacity.
Meanwhile, financial markets have been jittery. The benchmark CSI 300 index opened higher on Monday but soon edged down 0.24%. The offshore yuan, however, managed a slight strengthening to 7.1161 against the U.S. dollar. Still, there’s little doubt that the Chinese economy is losing steam, and policymakers face a delicate balancing act between supporting growth and avoiding the pitfalls of excessive debt.
In contrast, Bank Indonesia’s move this week took almost everyone by surprise. On Wednesday, September 17, 2025, the central bank cut its main interest rate—the first such move in a year—despite no economists in a Reuters survey of 31 predicting it. This cut brings the total reduction to 150 basis points over the past year. The decision has left investors and analysts questioning whether the central bank is succumbing to political pressure from President Prabowo Subianto, who has made no secret of his ambition to push Indonesia’s economic growth rate to 8% from the current 5%.
“Indonesia is leaning hard on growth,” said Howe Chung Wan, head of Asian fixed income at Principal Asset Management, in comments to Reuters. “Policymakers know a sluggish economy and weak jobs market could stoke discontent, so the bias is toward running the economy hot.” But he also cautioned, “The question for investors isn’t whether Indonesia wants growth, but whether it can balance that against currency stability. The rupiah remains the main pressure point, since the country still relies heavily on imports and foreign capital.”
The rupiah’s performance has indeed been troubling. Down 3% in 2025, it’s now the worst-performing currency in Asia. The currency hit a record low of 16,970 per U.S. dollar in April and was last seen at 16,585 as of September 19. Bank Indonesia has intervened multiple times this year to defend the rupiah, but the recent rate cut has only heightened fears of further depreciation, especially as investors fret that the central bank may be prioritizing growth over currency stability and inflation control.
“When the trade-offs between growth and currency stability become more explicit then BI will need to make harder choices,” said Chris Kushlis, chief EM macro strategist at T. Rowe Price. The spread between Indonesia’s 1-year and 10-year bond yields has widened to 120 basis points, up from just 37 in early April, reflecting growing market unease. Trinh Nguyen, senior economist for emerging Asia at Natixis Corporate & Investment Banking, noted, “Indonesia has had a great reputation for fiscal prudence and a central bank that prioritises FX stability over quick growth. Doubts are rising for both.”
Further complicating matters is a so-called “burden sharing” deal, in which Bank Indonesia will help fund government programs. This, coupled with ongoing discussions about expanding the central bank’s mandate and empowering parliament to remove its governor, has rattled investors. Howie Schwab, portfolio manager for emerging markets growth at Driehaus Capital, told Reuters, “I do not think the risk premium will revert anytime soon. Indonesia needs to take measures to reassure investors quickly otherwise they risk indefinitely handicapping their markets.”
Despite the turbulence, some analysts see a silver lining. Mark Ledger-Evans, portfolio manager at Ninety One in London, observed that Indonesia’s macroeconomic stability still puts it in a decent position. “The fiscal deficit, government debt, current account deficit and inflation are at low and stable levels... we think the central bank will continue cutting the policy rate.” The timing of Bank Indonesia’s cut may also be opportune, as the Federal Reserve’s recent shift to a rate-cutting cycle could keep the dollar weak, giving Indonesia more room to maneuver without putting excessive pressure on the rupiah.
Still, the stakes are high. If investor confidence continues to erode, Indonesia could face capital outflows and a further weakening of its currency, complicating efforts to achieve President Prabowo’s ambitious growth targets. For China, the challenge lies in finding the right mix of policy support to revive growth without stoking financial risks or undermining the hard-won stability of its banking sector.
As central banks across Asia weigh their options, the world’s attention remains fixed on how these economic heavyweights will navigate the tricky path between stimulus and stability. With both countries facing their own unique pressures, the coming months are sure to test the resolve—and independence—of their monetary authorities.