BI confident 5.25% rate hike won't burden UMKM borrowers

JAKARTA (ANTARA) – Bank Indonesia (BI) is confident that a 50 basis point (bps) rate hike to 5.25% will not burden UMKM borrowers, provided banking liquidity remains stable, supported by macroprudential policies. Senior Deputy Governor of BI Destry Damayanti said at the National Conference on Regional Economic Development (KNPED) in Jakarta on Monday. Destry added that support for UMKMs continues, alongside government programmes providing various incentives and stimulus for UMKMs and low-income groups. He explained that the central bank has macroprudential policies offering incentives through reduced minimum reserve requirements (GWM) for banks lending to specific sectors, including UMKMs. Under the Macroprudential Liquidity Incentive Policy (KLM), banks have received incentives of Rp424.7 trillion as of the first week of May 2026. This incentive has been strengthened following the BI rate hike, including through the spread between the BI rate and credit interest rates to ensure controlled credit rate movements. ‘There is actually around Rp400 trillion that banks should hold as GWM, but BI returns it to them. So banks still have ample liquidity,’ Destry said. Adequate banking liquidity is reflected in the liquid assets to third-party funds ratio (AL/DPK) of 25.39% as of April 2026, with DPK growing 11.39% year-on-year. Destry explained that BI had to raise the BI rate due to global conditions of ‘higher for longer’, with rising US bond yields, persistent inflation, and a strengthening US dollar index (DXY) against most global currencies. In this context, he stressed, exchange rate stability is crucial. Without policy adjustments, pressure on the rupiah would intensify, particularly from portfolio capital flows. He added that BI has implemented seven measures, including foreign exchange interventions via Non-Deliverable Forward (NDF) transactions in overseas markets, as well as spot and Domestic Non-Deliverable Forward (DNDF) transactions domestically. BI has also purchased Government Securities (SBN) to maintain liquidity and prevent yields from rising too sharply. Additionally, BI has strengthened the requirement for supporting documentation in foreign exchange purchases, aiming to curb speculative dollar demand and ensure transactions are based on genuine needs. ‘We want clarity that dollar demand exists but is for real needs—imports, debt payments—not speculative hoarding. That’s what we want to avoid,’ Destry said. At BI’s May 2026 Governor’s Meeting, the BI rate was raised by 50 bps from 4.75% to 5.25%. This marks the first adjustment since the benchmark rate was held at 4.75% since September 2025. Throughout 2025, BI had cut the benchmark rate five times, totalling 125 bps. According to BI data, bank credit grew 9.98% year-on-year in April 2026, up from 9.49% in March. Credit growth for 2026 is forecasted at 8-12%. In April 2026, the credit interest rate stood at 8.73%, while the one-month deposit rate was 4.16%.