Credit: Deposit Insurance Corporation.

JAKARTA (TheInsiderStories)–The Deposit Insurance Corporation raised the guarantee interest rate to respond the Bank Indonesia‘s move that adjusted 7 days repo rate by 50 basis points to 4.75 per cent.

The guarantee interest rate for rupiah in commercial banks and rural banks rose by 25 bps to 6 per cent and 8 per cent, respectively, while for the foreign currency deposit in commercial bank increased by 50 bps to 1.25 per cent. This interest rate hike is effective  from June 6, 2018 to September 7, 2018.

Chairman of the Deposit Insurance Corporation Halim Alamsyah said the move is a response to rising deposit interest rate following  Bank Indonesia‘s interest rate . Bank Indonesia has raised the interest rate two times in the mid and end of May by 50 basis points to 4.75 per cent.

Of the 62 banks referenced by the Deposit Insurance Corporation, deposit interest rate up 3 bps at 5.1 per cent after in stable condition in the previous three period. Saving interest rate for prime customers in the small-scale to the large-scale banks are higher than the guarantee interest rate or above 6 per cent.

Another factor that makes the institution raised interest rate because the interbank money market rate has risen around 66 bps in period of April 27 to May 28, 2018. In addition, the Jakarta Interbank Offered Rate (JIBOR) overnight and three months also risen 8 bps and 55 bps.

“Which means there is a tendency of long-term cost funds to be more expensive,” he said on Wednesday (06/06), as quoted by CNN Indonesia.

Furthermore, the guarante interest hike also considered the increased of liquidity risk. The loan to deposit ratio (LDR) increased to 89.96 per cent from 89.61 per cent. It in line with the loan grew 8.94 per cent in April 2018 versus 8.54 per cent in March 2018. While third party funds growth accelerated to 8.06 per cent in April 2018 from 7.66 per cent in March 2018.

In addition, the rupiah depreciation against US Dollar also put pressure on the money market and government’s debt papers. The rupiah depreciation caused foreign capital flow of Rp27 trillion.

“Although it is good news, there is no outflow from the bank’s deposit,” he added.

Alamsyah opened a possibility of adjusment in guarantee interest rate according to the money market condition. However, the adjustment of guarantee interest rate should only be done three times in January, May, and September.

“If there are significant changes in the future, LPS will not hesitate to adjust,” he concluded.