Bank Indonesia Strengthens Macroprudential Policy with New Liquidity Incentives

Enhanced Macroprudential Liquidity Incentives (KLM)

Bank Indonesia (BI) is implementing a new Macroprudential Liquidity Incentive (KLM) policy starting December 1, 2025. This policy aims to boost credit growth in priority sectors while maintaining financial system stability. The KLM offers banks up to 5.5% of Third-Party Funds (DPK) in incentives through two main channels: lending channel and interest rate channel.

Lending Channel Incentives

The lending channel provides incentives based on banks' commitment to lending in priority sectors such as agriculture, industry, construction, and MSMEs. The maximum incentive is 5% of DPK. The incentive amount is determined by both the commitment and realization of credit disbursement compared to previous periods.

Interest Rate Channel Incentives

The interest rate channel offers additional incentives of up to 0.5% of DPK if banks quickly and proportionally lower their lending rates following BI's policy rate changes. This ensures that monetary policy easing is transmitted effectively to the real economy.

Rationale Behind the Policy

The new KLM policy addresses several challenges:

1. Slowing credit growth - Bank credit growth remained subdued at 7.7% YoY as of September 2025
2. Weak transmission of monetary policy to lending rates
3. Need to support priority sectors aligned with government development goals (Asta Cita)

Risk Mitigation Measures

While the policy aims to stimulate economic growth, it also carries potential risks such as moral hazard and credit concentration in less productive sectors. To mitigate these risks, BI needs to:

1. Implement strict monitoring of banks' credit realization
2. Ensure transparent reporting of KLM utilization
3. Coordinate with fiscal policies related to credit programs like FLPP and KUR
4. Maintain clear guidelines on when to tighten the policy

Conclusion

The new KLM policy represents a significant step by BI to balance economic growth stimulation with financial stability. Successful implementation will depend on careful monitoring, transparent reporting, and coordination with other economic policies.