Economist: Bank lending rates to flatten and rise selectively
Jakarta (ANTARA) - Permata Bank Chief Economist Josua Pardede expects bank lending rates to move sideways and then rise selectively, following Bank Indonesia’s (BI) 100 basis point (bps) increase in the benchmark interest rate (BI-Rate) during May-June 2026.
He noted that interest rates on new loans will rise faster than those on existing loans.
“Banks are unlikely to raise rates uniformly, but will instead selectively increase rates for higher-risk debtors, sectors with weakening cash flows, or loans requiring longer tenors,” Josua said when contacted by ANTARA in Jakarta on Friday.
Josua assessed that rate increases could be more contained for priority sectors receiving liquidity incentives from Bank Indonesia.
However, he added, rate pressures need to be watched for micro, small, and medium enterprises (MSMEs), consumption, property, automotive, and working capital loans, as rising funding costs could coincide with increased credit risk.
According to Josua, lending rates will not rise as much as the full BI-Rate hike. This is due to at least three main buffers: banking liquidity remains fairly ample, reflected in third-party funds (DPK) that continue to grow strongly and a still adequate ratio of liquid assets to DPK; competition among banks restrains lending rate increases; and Bank Indonesia’s macroprudential policy remains accommodative to support credit to priority sectors.
He also observed that the decline in bank lending rates that occurred throughout 2025 until early 2026 has almost certainly halted, and rates on new loans have begun to reverse upwards.
The average rupiah lending rate edged down slightly to 8.72 percent in May 2026 from 8.73 percent in April 2026. However, the rate on new loans jumped sharply from 8.95 percent in April 2026 to 9.31 percent in May 2026.
“This indicates that rates on existing loans have not fully adjusted due to a time lag, while new loan rates have more quickly reflected rising funding costs, debtor risk, and a more cautious bank stance,” Josua said.
He added that the risk of further lending rate increases is quite real because the sensitivity of new loan rates to the BI-Rate has increased. The elasticity coefficient of new lending rates rose to 0.50 in May 2026 from 0.43 in April 2026, far higher than the 0.13 recorded in the same period the previous year.
“This means banks are beginning to pass through changes in the policy rate to new loan pricing more quickly,” Josua said.
He expects the most pronounced increases in new lending rates to likely occur in consumer loans, working capital loans, floating-rate mortgages (KPR), vehicle loans (KKB), higher-risk MSME loans, and corporate loans reliant on short-term funding.
From a funding cost perspective, Josua assessed that the 100 bps BI-Rate hike in May-June 2026 also has the potential to reverse the direction of banks’ cost of funds, although the increase is likely to be gradual.
In April 2026, the cost of funds was still declining. This was reflected in the cost of funds for lending (HPDK), which edged down to 3 percent from 3.01 percent the previous month. The decline in HPDK also supported a decrease in the prime lending rate (SBDK) from 8.63 percent in March 2026 to 8.62 percent in April 2026.
However, Josua assessed that the direction of transmission began to change after BI’s aggressive 100 bps rate hike in May-June 2026.