The Indonesian government’s liquidity policy has once again come under scrutiny following the cabinet reshuffle in September 2025, which marked a shift in the national fiscal–monetary paradigm. Purbaya Yudi Sadewa, as Minister of Finance, immediately took an aggressive approach by transferring Rp200 trillion in state cash from Bank Indonesia (BI) to state-owned banks (Himbara) to accelerate monetary policy transmission and support credit expansion to the real sector.
This move comes amid slowing economic growth—from 5.2 percent year-on-year in Q1 to 4.7 percent year-on-year in Q3 2025—due to weaker commodity exports and geopolitical pressures restraining foreign direct investment. On the other hand, headline inflation remains stable at 2.9 percent year-on-year, giving BI room to maintain the BI-Rate at 5.25 percent after a cumulative 125 bps cut since mid-2024.
The fund transfer is structured under a six-month Deposit on Call (DOC) mechanism (extendable) with yields of 80–85 percent of the BI-Rate. Recipient banks are prohibited from using these funds to purchase government bonds (SBN), BI monetary instruments, or other central bank securities. This structure ensures that liquidity flows into productive lending rather than passive portfolio assets. The policy effectively expands the liquidity base of the national banking system by nearly 5 percent of total Himbara deposits—a measure not seen since the 2020 National Economic Recovery (PEN) program.
Economic Rationale
In theory, this policy reactivates the credit channel as a key driver of monetary transmission. Bernanke & Gertler (1995) argue that a lower external finance premium—the gap between external and internal financing costs—occurs when banks receive additional liquidity. As a result, borrowing costs decline and investment rises.
In Indonesia’s case, monetary transmission has often been hampered by high funding costs and post-pandemic banking caution. OJK data shows Himbara’s Loan-to-Deposit Ratio (LDR) stood at 83 percent as of August 2025, below the pre-pandemic level of 92 percent. Meanwhile, national credit growth reached only 7.4 percent year-on-year, still below Bank Indonesia’s 10 percent target.
The Rp200 trillion liquidity injection directly reduces pressure on deposit rates and lessens interbank competition for funding. As a result, funding costs at Himbara decline by 30–50 basis points, allowing repricing of corporate and mortgage loan rates. If the leverage multiplier reaches 3–4 times, total potential credit expansion could reach Rp600–800 trillion within 12 months.
Macroeconomic Impact
This liquidity injection expands the monetary base and adds upward pressure on M2, which grew 6.7 percent year-on-year as of September 2025. This supports aggregate demand recovery but may raise medium-term risks to price stability. However, with Indonesia’s output gap still negative at around -0.3 percent of potential GDP, short-term inflation risk remains limited.
In financial markets, initial effects include a decline in IndONIA from 5.05 percent to 4.85 percent and a drop in 10-year SBN yields to around 6.35 percent. This improves domestic asset valuations, strengthens the rupiah slightly to Rp15,250/USD, and reduces the country risk premium. However, markets remain cautious about fiscal discipline, as increased spending and cash reallocation could signal an expansionary stance heading into 2026.
Implementation Risks
The main challenge of this policy lies not in liquidity provision, but in absorption capacity and credit quality. The 2020–2021 experience showed that high leverage without proper screening led to an increase in MSME non-performing loans (NPL) to 4.5 percent. Currently, OJK reports gross NPL at 2.3 percent, but MSME credit quality remains fragile due to weak demand.
Recipient banks must report monthly to the Ministry of Finance, including (i) credit-to-DOC ratios, (ii) sectoral distribution, and (iii) NPL trends. Transparency is essential to prevent liquidity from being parked again in interbank deposits or securities.
Coordination with Bank Indonesia is also crucial, particularly through easing the Macroprudential Intermediation Ratio (RIM) and providing incentives for green and digital credit. If aligned, transmission will be faster and moral hazard risks reduced.
Reform Agenda
To maximize impact, four strategic measures are needed:
- Establish measurable sectoral KPIs: at least 40 percent of DOC funds must flow to productive sectors (MSMEs, agriculture, manufacturing, and housing) within the first six months.
- Implement performance-based roll-over schemes: DOC extension and rate adjustments only for banks achieving credit targets with NPL below 3 percent.
- Create a Public Credit Dashboard under the Ministry of Finance–OJK coordination to display aggregate credit distribution and quality without exposing individual bank data.
- Link liquidity policy with demand-side incentives such as MSME credit guarantees, green KUR interest subsidies, and acceleration of government capital expenditure projects.
These measures combine the traditional credit channel with a governance-based liquidity framework, now emphasized by OECD and BIS post-pandemic: liquidity is productive only when accompanied by discipline and transparency.
Outlook and Conclusion
In 2025–2026, this liquidity injection into Himbara could add 0.3–0.5 percentage points to GDP growth through increased investment and credit-driven consumption. However, real success depends on fiscal–monetary coordination and banks’ ability to channel liquidity into productive lending.
With a dovish BI stance, controlled inflation, and moderate external pressures, growth space is opening. But if fiscal discipline weakens and funds remain parked in portfolios, liquidity will only reduce monetary efficiency without boosting real output.
Ultimately, “circulating money” is merely oxygen; the quality of its lungs is governance and policy discipline. If credit governance is maintained, government liquidity placement could mark a new phase of fiscal–monetary integration in Indonesia: 6 percent growth becomes realistic without sacrificing stability, and the financial system enters a new era—where liquidity is not just availability of money, but a disciplined and deliberate act of productive allocation.
