OJK Confident Lending Rates Will Fall, Here's Why

The Financial Services Authority (OJK) views that the 100 basis point (bps) increase in the benchmark interest rate (BI-Rate) to 5.75% has the potential to hold back the decline in lending rates that had previously occurred throughout 2025 until mid-2026. Chief Executive of Banking Supervision at OJK Dian Ediana Rae said that in the short term, banks are likely to be more selective in lowering lending rates, given the increase in the cost of funds. “Banks will do so in a measured and selective manner, while maintaining a balance between profitability and credit growth. This is important so that the intermediation function continues to run optimally amid still high financing needs, as well as to maintain good credit quality,” Dian said when contacted by ANTARA in Jakarta, Friday.

Nevertheless, Dian added, the transmission to lending rates generally takes place more slowly than to deposit rates, due to considerations of competition, credit quality, and efforts to maintain intermediation growth. “Therefore, lending rates are expected to remain stable with a limited tendency to increase,” he said. Dian explained that the 100 bps increase in the BI-Rate will generally be responded to by banks through adjustments to both lending and deposit rates. Historically, this is a normal market mechanism and banks will adjust pricing in line with their cost of fund structure and liquidity conditions. “Thus, the magnitude and speed of the adjustment of (lending and deposit) rates are not always immediate or uniform across all banks,” Dian said.

He added that banks continue to consider various factors, including internal liquidity conditions, the structure of third-party funds (DPK), the level of competition, customer loyalty, and the ability and risk profile of debtors. Banks also tend to continue optimising low-cost funds (CASA) to maintain cost of fund efficiency. “Taking these factors into account, the downward trend in the cost of funds that occurred after the 125 bps BI-Rate cut last year, we view that this trend has the potential to moderate or even gradually reverse in 2026,” Dian said. Nevertheless, he added, the adjustment is expected not to be sharp, considering that banks will be cautious in order to maintain competitiveness and margin stability.

Dian also confirmed that the OJK continues to encourage banks to maintain efficiency and strengthen liquidity management. In addition, the OJK encourages banks to ensure that the interest rate transmission continues to support sustainable economic growth while maintaining financial system stability. For information, throughout 2025, Bank Indonesia (BI) cut the BI-Rate five times with a total reduction of 125 bps. With that reduction, bank lending rates only fell by 39 bps from 9.20% at the beginning of 2025 to 8.81% in December 2025. As of May 2026, the lending rate was recorded at 8.72% and the 1-month deposit rate at 4.26%. At the monthly Board of Governors Meeting (RDG) on 19-20 May 2026, the BI-Rate was raised by 50 bps, marking the first adjustment after being held at 4.75% since September 2025. However, the rupiah exchange rate continued to weaken, touching the Rp18,000 per US dollar level, prompting BI to raise the rate again by 25 bps through a weekly RDG on 9 June 2026, outside the regular schedule. Most recently, on Thursday (18/6), through the monthly RDG, the central bank decided to raise the BI-Rate by another 25 bps. Cumulatively, the BI-Rate has thus increased by 100 bps in one month to its current level of 5.75%.