Inflation and Interest Rate, Current Case in Indonesia

Indonesian Banks ready to increase interest rate of some savings; consist of Regular Savings, Fix and Durable Deposit, and Giro after LPS (Indonesian institutional for Saving Security) increased its interest rate to follow the inflation rapid and to avoid drain money from banks.
Yesterday, Vice President of BCA Jahja Setiatmadja said that they (BCA) would like to increase interest rate of those savings accounts. In BCA, annually Durable Deposit interest rate is 5.5 percent.
A week before, The LPS Meeting has been determining that in period June 15th to September 14th 2008, savings security interest for commercial banks is 8.5 percent or up 25 points, previously 8.25 percent. Newer savings security is 8.5 percent equivalent with Indonesian Reserve Bank (BI Rate) Interest rate reference.
Chief executive PLS Firdaus Djaelani said that the new 8.5 percent based on their consideration that in coming months, Banks will offers higher interest rate, to follow the inflation rate.
LPS (Saving Security) is a security and lender to guarantee costumers saving if the Banks collapsed. So Commercial Banks must follow their decision and rules. LPS guarantees up to 100 million IDR with 8.5 percent interest rate per year. LPS doesn’t guarantee costumers saving account if either 100 million IDR or 8.5 percent of interest rate are restricted.
A local Indonesian Banks (BRI) Official staff said that their bank still in progress to determine their bank has or hasn’t to adjust their interest rate. BRI still uses 5.25 percent per year for monthly durable deposit.
Interest rate is crucial indicator for Commercial Banks to keep their costumers. Higher dispute between Interest rate and Inflation rate will make costumers run their money from lower interest banks.
Until April 2008, Banks’ interest rate are decreasing trend. March 2008, Banks’ interest rate was around 6.84 percent per year, down to 6.81 percent per year in April. Lower deposit will make investment goes well, otherwise, running high on interest rate will make people put their money in Banks to get return.
General Chief of Commercial banks association, Sigit Pramono said, inefficiency banks (high cost) will increase their credit interest soon. “They (Banks) is still waiting each others, who is the leader to increase interest rate first.”
But for banks which cheap capital dominating, in short-term they find no reason to increase the current interest rate. They prefer cutting on their profit, better than increase the interest rate.

Source: Kompas.com.