Bank Indonesia Introduces KLM Measures to Curb Credit Rate Increases
Makassar — Bank Indonesia’s (BI) decision to raise the benchmark interest rate (BI Rate) from 4.75% to 5.25% in May 2026 is expected to trigger rapid increases in bank interest rates. To anticipate this, BI has strengthened the Macroprudential Liquidity Incentive Policy (KLM) to keep bank interest rates more controlled.
Director of BI’s Macroprudential Policy Department Dhaha P. Kuantan said BI has reinforced the KLM interest rate channel based on the spread between BI Rate and bank credit interest rates. Through this KLM incentive, banks are expected to reconsider credit interest rate adjustments. He stated that if banks can maintain a certain spread against BI Rate so that credit interest rate increases are not aggressive, they stand to gain optimal KLM incentives.
“The hope is that after BI raised the rate by 50 basis points (bps) recently, banks will not immediately increase credit interest rates,” Dhaha said at BI’s Journalist Training event titled “Strengthening Foreign Exchange and Intermediation Policies for Rupiah Stability and Credit Growth” in Makassar, South Sulawesi.
Dhaha explained that the previous KLM interest rate channel mechanism was calculated based on the elasticity between BI Rate and new credit interest rates. The new incentive scheme, effective from 1 August 2026, is based on the spread between BI Rate and new credit interest rates, with the highest incentive of 1% of third-party funds (DPK) for conventional commercial banks, Sharia commercial banks (BUS), and Sharia business units (UUS).
Under the regulations, banks that maintain a new credit interest rate spread below 3% against BI Rate will receive the maximum incentive of 100 bps. A spread between 3% and less than 6% earns 40 bps, 6% to less than 10% gets 10 bps, and spreads above 10% receive no incentive.
With the strengthened interest rate channel mechanism based on BI Rate and credit interest rate spreads, BI hopes for better policy transmission and controlled credit rate increases, ensuring credit growth continues.
Besides the interest rate channel, BI has also strengthened KLM lending channel into a financing channel by adding non-traditional financing. In the new scheme, banks’ holdings of BI-designated corporate bonds or Sharia securities can count towards financing for MSMEs, cooperatives, inclusion, and sustainable sectors.
Dhaha explained the move because MSME financing growth is still limited, leaving significant room for expansion through various financing instruments.
BI maintains the highest financing channel incentive at 4.5% of DPK, including an additional non-traditional financing incentive of up to 1% of DPK. BI has also introduced a new channel in KLM incentives, the financing to funding channel, to strengthen banks’ funding sources beyond DPK.
Under this scheme, additional incentives are given to banks not yet receiving the maximum 5.5% incentive and meeting BI’s macroprudential intermediation ratio (RIM) based on achieving funding sources beyond DPK.
Dhaha added that non-DPK funding requires more effort and innovation from banks, so BI is offering additional incentives of up to 0.5% for banks that strengthen alternative funding sources.
“Since non-DPK funding requires effort from banks, when they innovate in this direction, we can offer incentives,” he said.
Previously reported, BI decided to raise the BI Rate by 50 bps from 4.75% to 5.25% in the May 2026 Governor’s Meeting. This is the first rate hike since BI aggressively cut rates throughout 2025.
In 2025, BI cut the BI Rate five times, totalling 125 bps. According to BI data, bank credit in April 2026 grew 9.98% year-on-year (yoy), higher than March 2026’s 9.49% (yoy). During the same period, credit interest rates stood at 8.73%, while one-month deposit rates were 4.16%.
BI is optimistic that bank credit growth in 2026 will remain within the target range of 8% to 12%. BI continues to push banks to improve efficiency to avoid raising credit interest rates and support credit implementation.