BI Prepares Incentive Scheme to Keep Lending Rates Under Control
Bank Indonesia (BI) is preparing changes to the macroprudential liquidity facility (KLM) incentive scheme so that banks keep lending rates from rising even as the policy rate or BI Rate climbs again. The policy is prepared to safeguard the transmission of credit to the business world and to households.
Director of the Macroprudential Policy Department at Bank Indonesia, Dhaha P Kuantan, said the KLM mechanism is designed to accelerate reductions in lending rates when BI cuts the policy rate. This is evident from lending rate trends which have still been trending downward in recent months. The average bank lending rate fell from 9.03 percent in March to 8.95 percent in April 2026. “The lending rate, if we monitor since March, the magnitude was about 9.03 percent; in April it’s 8.95 percent, so it continues the downward trend in line with the transmission of the BI Rate. The declines had occurred and stayed, so there is a lag effect,” Dhaha said during a journalist training in Makassar on Friday, 22 May 2026.
However, he noted that room for further reductions in lending rates is now challenged after BI raised the BI Rate by 50 basis points to 5.25 percent in May 2026. The rise in the policy rate has the potential to push lending rates back up.
To dampen that impact, BI will modify the mechanism for granting KLM incentives. Incentives will be calculated based on the difference or spread between the BI Rate and lending rates. With this scheme, Dhaha continued, banks that do not raise lending rates too high when the BI Rate increases will still be eligible for incentives from BI.
According to him, the step is expected to keep lending rate adjustments under control so that lending growth does not face disruption even if the policy rate increases.
“So when the BI Rate goes up later, but banks do not raise lending rates significantly or in a manageable, not very high, way, those banks will definitely receive their incentives,” he added.
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