LPS raises deposit insurance rate – Jakarta Post

The Deposit Insurance Corporation (LPS) on Wednesday announced the increase of its deposit insurance rates for both rupiah and foreign exchange-denomination savings as banks have started to raise their deposit rates in response to Bank Indonesia’s (BI) recent interest rate hike.

The deposit insurance rate for savings in rupiah increased 25 basis points (bps) to 6.5 percent, while the deposit rate for foreign-denominated savings increased 50 bps to 2 percent.

Meanwhile, the deposit insurance rate for rupiah-denominated savings in microcredit banks (BPR) was also increased by 25 bps to 9 percent.

The new rates will be in effect starting from Thursday until Jan. 12, 2019.

Among the factors behind the LPS’ decision was the upward trend of banks’ deposit rates as a response from BI’s recent seven-day reserve repot rate ( 7DRRR ) hike, LPS Commissionaire Council chairman Halim Alamsyah said in Jakarta on Wednesday.

According to LPS’ benchmarking to 62 banks between Aug. 6 to Sept. 4, deposit rates rose 12 bps to 5.66 percent for rupiah-denominated savings, while deposit rates for foreign exchange-denominated savings also increased 10 bps to 0.98 percent between Aug. 9 and Sept. 4.

“The [deposit] insurance rates increased gradually in response to the rate increase as a monetary policy, while in the same time, there was a trend for banks to increase their rates as an instrument for interbank competition,” Halim said.

He added that the banks’ liquidity risk would still be high following the Federal Reserve’s plan to hike the Fed Fund Rate and the escalating trade war between China and the United States. (bbn)