BI Says Money Circulating Rises Driven By Monetary Easing And Government Sale Funds In Banking

Illustration. (Photo: Doc. Antara)

JAKARTA - Bank Indonesia (BI) expressed a loose monetary policy and the placement of the Government's More Budget Balance (SAL) funds in banks pushed for an increase in the amount of money in circulation.

BI Governor Perry Warjiyo said the growth of Primary (M0) Adjusted money, namely primary money which has taken into account the impact of the decline in the Bank's Minimum Mandatory (GWM) in Bank Indonesia due to the provision of a policy of incentives for macroprudential liquidity (KLM) was recorded at 18.58 percent (yoy) in September 2025, higher than the M0 growth (without taking into account the impact of KLM) by 13.16 percent (yoy).

He added that from the influencing factors, the M0 Adjusted increase was influenced by the government's financial expansion in Net Bills to the Central Government (Net Claims on Government-NCG).

"The relaxation of monetary policy has an impact on the growth of money in circulation in a broad sense (M2) August 2025 which increased from 5.46 percent (yoy) in January 2025 to 7.59 percent (yoy)," he said at a press conference, Wednesday, October 22.

In terms of components, he said the increase in M2 growth was influenced by the growth of money in circulation in a narrow sense (M1) from 7.25 percent (yoy) in January 2025 to 10.51 percent (yoy) in August 2025, in line with the growth in cash from 10.30 percent (yoy) in January 2025 to 13.41 percent (yoy) in August 2025.

According to him, in terms of influencing factors, the M2 increase mainly stems from the increase in Clean Foreign Assets (Net Foreign Asset-NFA).

In the future, Perry said that the amount of money circulating is predicted to increase in line with the Government's fiscal policy expansion.

In addition, Perry views that the decline in banking interest rates needs to be pushed forward in line with the easing of monetary policy that has been taken and the placement of government SAL funds in banks.

According to him, in line with the 50 bps BI-Rate decline since September 2024 and the expansion of Bank Indonesia's monetary liquidity, the INDONESIA interest rate fell by 204 bps from 6.03 percent in early 2025 to 3.99 percent on October 21, 2025.

In addition, SRBI interest rates for tenors 6, 9, and 12 months also decreased by 251 bps, 254 bps, and 257 bps each since early 2025 to 4.65 percent; 4.67 percent; and 4.70 percent on October 17, 2025.

He added that the SBN yield for the 2-year tenor decreased by 218 bps from 6.96 percent in early 2025 to 4.78 percent on October 21, 2025, while the 10-year tenor decreased by 132 bps from the highest level of 7.26 percent in mid-January 2025 to 5.94 percent.

However, Perry said that the decline in banking interest rates was still slow and therefore needed to be accelerated.

He added that when compared to the 50 bps BI-Rate decline, the 1 month deposit rate only decreased by 29 bps from 4.81 percent in early 2025 to 4.52 percent in September 2025, mainly influenced by the special rate given to large deposits which reached 26 percent of the total bank's DPK.

"The decline in bank credit interest rates was even slower, which was 15 bps from 9.20 percent in early 2025 to 9.05 percent in September 2025," he said.