JAKARTA (TheInsiderStories) - Indonesia government through Finance Minister Regulation No. 77 /2016 set limits on bank deposit interest rate for the government’s money. The deposit interest rate can not exceed the benchmark rate of Bank Indonesia (BI).
Finance Minister Bambang Brodjonegoro stated, the rule has become effective since May 3. As per the position of the current BI rate, then any bank that holds government funds are not allowed to set deposit rates exceeding 6.75 percent.
“The purpose is that there is no competition on deposit interest rate. We want government funds are deposited with the maximum interest rate in accordance with BI rate,” he said.
His expects to eliminate the provision of banking tradition that are competing to offer high interest (special rate) to attract government funding.
His expects to eliminate the provision of banking tradition that are competing to offer high interest (special rate) to attract government funding.
A lower interest rate on deposits is expected to provide a wider space for banks to reduce lending rates. Nevertheless, the rule applies only to government funds that are parked or deposited in the form of rupiah.
Mardiasmo, the Deputy for Finance Minister said, the government had discussed the plan to lower deposit rates with State-Owned Enterprises (SOEs) that place their funds in banks.
He added, the current deposit rates of banks are still high, especially when compared to the yield in other countries. The high deposit rates currently make the bond market and other financial instruments to be considered unattractive.
This directly reflects Indonesia’s financial market system and that is difficult to compete. If this deposit rate is reduced, people will begin to look to bonds as an alternative financial instrument, which is quite interesting.
Kenta Institute economist Eric Sugandi sees that these policies are targeting two things. The first target is to push spending of ministries or institutions and second to stimulate banks to lower the cost of funds. The elimination of special deposit rates, he said, will make cost of funds to be lower as well. (*)