3-Month Deposit Interest Rates Fall Sharply

Average interest rates on rupiah-denominated bank deposits showed a downward trend throughout January 2016-January 2017. The largest decrease was recorded on time deposits (deposits) with a 6-month tenor, reaching 1.5 percentage points to 6.76 percent, followed by deposits with a tenor of 12 months or more, which decreased by 1.22 percentage points to 7.3 percent.

Similarly, interest rates on low-cost funds, demand deposits, and savings deposits also decreased during the January 2016-January 2017 period. Demand deposit interest rates fell by 0.03 percentage points to 2.3 percent, and savings deposit rates fell by 0.03 percentage points to 1.68 percent per annum.

The sluggish domestic economy has created intense competition to attract funds from the public, prompting some banks to offer higher interest rates to customers with large sums of money. As a result, banks' interest expenses will naturally increase. To prevent an interest rate war, the Deposit Insurance Corporation (LPS) imposes limits on the interest rates offered to customers. The current guaranteed interest rate for commercial banks is 6.25 percent and for Rural Banks (BPR) is 8.85 percent. For foreign currency deposits, the rate is 0.75 percent.