Higher Foreign Currency Guarantee Interest Rates Compared to Rupiah

The Deposit Insurance Corporation (LPS) Board of Commissioners, in a meeting on September 10, 2018, conducted an evaluation and again raised the guaranteed interest rate for deposits in Rupiah and foreign currencies at Commercial Banks and Rural Banks (BPR). LPS has raised the guaranteed interest rate three times this year, following the increase in BI's 7-day Reserve Repo Rate benchmark interest rate, which has risen by 100 bps to 5.5%.

The interest rate for Rupiah deposits in commercial banks has increased by 75 bps to 6.5%, and the Rupiah interest rate for BPRs has also increased by 75 bps to 9% since the beginning of 2018. Meanwhile, the guaranteed interest rate for foreign currency deposits has increased by 125 bps to 2%, higher than the increase in the Rupiah interest rate.

LPS's move to raise the deposit insurance interest rate is based on several considerations, including the fact that deposit interest rates are still showing an upward trend and have the potential to continue rising in line with the increase in BI's monetary policy interest rate. In addition, there is a tendency for increasing liquidity risk, although it remains relatively stable. Up to September 2018, LPS has conducted five interest rate evaluations. Increased uncertainty in the global financial market, along with the increase in the US Federal Reserve (The Fed) interest rate, led BI to raise its benchmark interest rate to curb the depreciation of the Rupiah.