LPS: Banking Liquidity Will Be Looser Along With The Decreased BI Rate

JAKARTA - The Deposit Insurance Corporation (LPS) views that banking liquidity will be looser in line with the reduction in the benchmark interest rate of Bank Indonesia or BI-Rate in May 2025 which is also supported by the LPS policy.

"In my opinion, with the central bank lowering interest rates, supported by LPS, the issue of banking liquidity should be significantly reduced in the future," said LPS Board of Commissioners Purbaya Yudhi Sadive at a press conference in Jakarta, quoted by Antara, Wednesday, May 28.

Purbaya also believes that the national economic condition will grow rapidly because of the increasing liquidity of banks.

"Moreover, we see that the government has started to pour money into the economic system through accelerated spending, including to the regions," he said.

Purbaya said that banking liquidity conditions until December last year were indeed worrying. However, since the beginning of this year, according to him, liquidity has grown high where primary money (M0) has grown double digits.

He also said that the LPS guarantee interest rate (TBP) was maintained at the right level, in line with the central bank's monetary policy.

Therefore, after the BI-Rate cuts of 25 basis points (bps) to 5.5 percent this month, LPS also adjusted the TBP.

The TBP of rupiah deposits in commercial banks is 4.00 percent and the TBP of rupiah deposits in BPR/S is 6.50 percent. However, for TBP, foreign exchange savings in commercial banks will still be maintained at the level of 2.25 percent.

"At this time, we need to get a clear monetary policy transmission from the central bank to the economy. If LPS does not move, for example, then its monetary policy transmission will be disrupted," said Purbaya.

He added that the determination of the TBP for the second regular period of 2025 followed the steps of the Indonesian central bank to provide the right signal so that it could boost the economy.

If in the future the trade war worsens, for example it is more negative than we expected, we are much more prepared. So far, we have maintained the guarantee interest rate at the right level. What does that mean? Banking can get a lower cost of capital and credit can also be given with interest that is not too high," said Purbaya.

On the same occasion, the Executive Director of Surveillance, Audit and Statistics of LPS Dwityapoetra S. Besar said that the decline in BI-Rate had begun to be transmitted to financial and banking markets.

The overnight interbank (PUAB) money market has also dropped. Then (the interest rate) of the Bank Indonesia Rupiah Securities (SRBI) has also dropped from 7.27 percent to 6.47 percent. Yield of Government Securities (SBN) has also decreased 6.98 percent, now it's even 6.81 percent," said Poetra.

He added that with a decrease in interest rates in the market, it is hoped that this will also reduce the cost of funds or cost of funds for banks.

Thus, in the end, interest competition among banks will also be affected.

For information, according to LPS records, the rupiah deposit market interest rate (SBP) is moving in a limited range. During the May 2025 observation period, SBP was recorded to have increased by 3 bps to a level of 3.56 percent compared to the January 2025 observation period.

Meanwhile, the movement of foreign exchange deposit SBP in the same period tends to be more dynamic. The foreign exchange SBP in May 2025 was observed to increase by 11 bps to a level of 2.17 percent compared to the observation period in January 2025.

As of April 2025, third party funds (DPK) grew by 4.55 percent year on year (yoy). The collection of DPK is supported by demand products and savings, which grew 6.02 percent and 6.05 percent (yoy), respectively.

In the same period, liquidity conditions were recorded to be still relatively adequate with the Liquid Equipment/Non-Core Deposit (AL/NCD) ratio at 111.32 percent (threshold: 50.0 percent) and the Liquid Equipment to Third Party Fund (AL/DPK) ratio at 25.23 percent (threshold: 10 percent).