Bank Indonesia Interest Rate Hikes: When Will Deposit Rates Follow Suit?

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Adi Ahdiat 25/08/2022 11:20 WIB

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Historically, there has been a lag of several months between increases in Bank Indonesia's benchmark interest rate and increases in deposit interest rates.

Bank Indonesia's Reference Interest Rate and General Bank Deposit Interest Rate (January 2018-June 2022)

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Bank Indonesia Interest Rate Hikes: When Will Deposit Rates Follow Suit?

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Bank Indonesia's Reference Interest Rate and General Bank Deposit Interest Rate (January 2018-June 2022)

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Bank Indonesia (BI) raised its benchmark interest rate by 25 basis points (bps) to 3.75% in August 2022.

According to BCA economist David E. Sumual, this increase will prompt banks to raise deposit interest rates. However, not all banks will respond immediately.

"Usually, savings interest rates rise first. At least, there will likely be a response next month," David explained to *Katadata.co.id* on Tuesday (23/8/2022).

Historically, there has been a lag of several months between BI's benchmark interest rate hikes and increases in deposit interest rates.

In 2018, for example, BI raised its benchmark interest rate to 4.75% in May. However, general bank deposit interest rates only started to rise in September, as shown in the graph.

The trend of benchmark interest rates and deposit interest rates is not always directly proportional. This is evident from the period February 2021-June 2022, where BI's benchmark interest rate remained stagnant, but general bank deposit interest rates fell sharply.

According to BCA economist David E. Sumual, each bank may respond differently to BI's benchmark interest rate, depending on the bank's liquidity conditions.

"If a bank's liquidity conditions are good, it may not need to raise deposit interest rates," David explained.

(See also: Even Though BI Interest Rate Rises, Consumer Credit Interest Rates Could Fall)

Editor : Adi Ahdiat

"Disclosure: This is an AI-generated translation of the original article. We strive for accuracy, but please note that automated translations may contain errors or slight inconsistencies."