New BI Incentive: Bank Interest Rates to Decrease Starting Tomorrow!

Rancak Media – JAKARTA — Bank Indonesia (BI) is significantly bolstering its macroprudential policy incentives (KLM) to invigorate credit growth and accelerate the transmission of banking interest rate reductions, aligning seamlessly with its monetary policy objectives. These enhanced incentives are scheduled to become effective on December 1, 2025.

Irman Robinson, Director of BI’s Macroprudential Policy Department, elucidated that the strengthened KLM incentives will be implemented through two distinct schemes. The first is the credit or financing pathway, commonly known as the lending channel.

Robinson explained that the lending channel scheme is meticulously designed to provide banks with greater liquidity, enabling them to disburse credit in accordance with their committed growth targets. This initiative comes as BI reported annual credit growth of 7.7% in September 2025, a figure the central bank deems insufficient and aims to further stimulate.

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“We are now deliberating on how to foster stronger credit growth. Banks, of course, already have credit growth commitments outlined in their quarterly business plans. We will provide incentives based on these commitments,” Robinson stated during a BI Journalist Training event in Bukittinggi on Friday, October 24, 2025.

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He further elaborated that these incentives are provided upfront, based on the credit disbursement commitment reports submitted by the banks. This scheme represents a forward-looking assessment, as BI extends liquidity support in advance to aid in achieving planned credit growth targets. However, if actual credit disbursement falls short of the initial commitment, BI will implement adjustments in the subsequent quarter.

Robinson underscored that the primary objective of this policy is to ensure banks possess ample liquidity to sustain credit expansion, particularly for those institutions with remaining risk capacity and the capability to channel financing into productive sectors. The incentives are specifically targeted at credit disbursements across four priority sectors, with the maximum total KLM reaching 5% of third-party funds (DPK). The breakdown is as follows:

1. Credit disbursement to the Agriculture, Industry & Downstreaming sectors receives a KLM of 1.5%.
2. Credit disbursement to the Services sector (including the creative economy) receives a KLM of 0.6%.
3. Credit disbursement to the Housing sector receives a KLM of 1.4%.
4. Credit disbursement to MSMEs, Cooperatives, Inclusion, and Sustainable sectors receives a KLM of 1.5%.

The second incentive pathway, complementing the lending channel, is provided through the interest rate channel. Robinson noted that the transmission of policy rate reductions, specifically the BI Rate, to banking interest rates remains sluggish. While the central bank has reduced the BI Rate by 150 basis points (bps) from 6.25% to 4.75% over the past year, bank lending rates have only decreased by a modest 15 bps since early 2025, reaching 9.05% in September 2025.

“Naturally, we aim to accelerate this transmission. Therefore, we will recognize and offer greater incentives to banks that more swiftly adjust their lending rates in line with Bank Indonesia’s policy rate direction,” Robinson explained.

This scheme’s calculation is based on the elasticity of lending rates to the BI Rate. The elasticity is computed using the formula:

Elasticity = (% Change in Lending Rate) / (% Change in BI Rate)

Banks demonstrating a higher elasticity value, indicating a swifter adjustment of their lending rates in response to changes in the BI Rate, will consequently receive more substantial incentives from Bank Indonesia.