Indonesian finance ministry to extend March-maturing state bank deposits for six months

Indonesian finance ministry to extend March-maturing state bank deposits for six months

Indonesian Finance Ministry Extends State Bank Deposit Maturity to Stimulate Credit Growth

The Indonesian Finance Ministry has extended the maturity of state bank deposits initially set to mature in March 2025, aligning with its broader strategy to enhance liquidity and stimulate credit expansion. Under Finance Minister Purbaya Yudhi Sadewa’s directive, the government has allocated 200 trillion rupiah ($12.2 billion) to state-controlled banks, placing the funds in a "deposit on call" instrument for six months, with potential extensions according to Reuters. This move aims to ensure the funds flow into productive sectors rather than being used for bond purchases as Business Times reports.

The liquidity injection, the minister's first major action since assuming office, targets a "dry" banking system and sluggish economic growth, which has averaged 5% since the pandemic according to Reuters. By redirecting government-held cash at the central bank to commercial banks, the policy seeks to lower borrowing costs and spur credit growth. State lenders such as Bank Mandiri, Bank Negara Indonesia (BNI), and Bank Rakyat Indonesia (BRI) each received 55 trillion rupiah, while Bank Tabungan Negara and Bank Syariah Indonesia received smaller allocations according to BI data.

The funds are structured to provide flexibility: the government can withdraw the money at any time for operational needs, while banks must report monthly on fund usage to the treasury department according to Reuters. This oversight aims to maintain fiscal discipline while encouraging lending to small businesses, infrastructure, and retail sectors.

Economists note the policy leverages the "money multiplier" effect, where initial liquidity injections could amplify broader money supply growth through fractional reserve banking as Intellinews explains. However, concerns persist about potential inflationary pressures if banks prioritize low-risk consumer loans over productive investments.

Purbaya has indicated readiness to inject additional funds if needed, emphasizing the government's commitment to achieving growth targets of 6–7%, and even President Prabowo Subianto's 8% goal. The extension of the deposit maturity reflects ongoing efforts to sustain momentum in credit expansion and economic recovery.

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