Interest Rate War Looms, Indonesian Citizens Could Be Squeezed

Jakarta, CNBC Indonesia - A number of economists have revealed that liquidity conditions in Indonesia remain tight amid the upward trend of Bank Indonesia’s (BI) benchmark interest rate.

M. Rizal Taufikurahman, Head of the Center of Macroeconomics and Finance at the Institute for Development of Economics and Finance (INDEF), stated that liquidity conditions in mid-sized banks, or those in the Bank Group based on Core Capital (KBMI) II and III categories, are still tight, which could trigger a ‘deposit rate war’.

‘Complaints about tight liquidity, especially from mid-sized banks (KBMI II-III), indicate increasing competition in collecting public funds. This condition has the potential to trigger a war for deposit interest rates,’ Rizal told CNBC Indonesia on Tuesday (21/7/2026).

This situation will disadvantage banks, particularly those with a limited base of cheap funds (current account, saving account/CASA). As a result, the room for KBMI II and III banks to lower lending rates is very limited.

‘If a rate war occurs, the cost of funds will increase, net interest margins (NIM) will be pressured, and the space to lower lending rates will become increasingly narrow,’ Rizal explained.

Therefore, according to him, the challenge for the government and monetary authorities going forward is not only to maintain monetary stability but also to ensure that banking liquidity remains adequate so that the intermediation function is not disrupted.

Meanwhile, Permata Bank Chief Economist Josua Pardede stated that the current banking problem is not a shortage of liquidity, but rather the uneven distribution of liquidity among banks.

‘The distribution of liquidity is not yet even among banks, where large banks (KBMI IV) tend to be stronger due to their cheap funding base and wider transaction ecosystem, while mid-sized banks (KBMI II-III) are more sensitive to the movement of large depositors’ funds,’ said Josua.

Josua added that indications of a rate war are beginning to emerge, but they are still selective and have not yet escalated.

‘Indications of a rate war are indeed starting to appear, but they are still selective and have not become a major industry-wide rate war,’ Josua continued.

He explained that deposit data by KBMI category shows that the funding structure is highly concentrated in large banks, with KBMI IV recording a position of IDR 5,550.8 trillion as of May 2026, far exceeding KBMI I, KBMI II, and KBMI III.

‘In a condition where the benchmark interest rate is rising, SRBI is attractive, retail government bonds (SBN) offer high coupons, and large depositors are increasingly sensitive to yields, mid-sized banks must offer more competitive interest rates to retain their funds,’ Josua clarified.