JAKARTA – The reduction of the deposit insurance rate by the Indonesia Deposit Insurance Corporation (LPS) to 4% is expected to encourage a decline in bank deposit and savings interest rates.

According to research by analysts at Kiwoom Sekuritas, LPS’s decision signals further monetary easing, which would positively affect Indonesia’s financial system liquidity.

“With a lower deposit insurance rate (TBP), banks have room to lower deposit interest rates, and eventually reduce lending rates,” wrote the Kiwoom Sekuritas analysts in their research note.

If bank deposit rates decline, the public is expected to shift towards more liquid investment instruments such as equities and mutual funds. This is believed to have the potential to drive inflows into the capital market.

Kiwoom Sekuritas analysts also highlighted several sectors worth monitoring following the LPS rate cut, especially given the potential drop in lending rates and improved purchasing power.

These include banking, property, consumer, and retail & durable goods sectors.

Nevertheless, Kiwoom Sekuritas forecasts that the Jakarta Composite Index (IHSG) will continue to consolidate around the 7,130 support level during trading on Wednesday (28/5). However, there remains the potential for further gains as long as the index holds above 7,000.

During trading on Tuesday (27/5), the IHSG closed up 0.15% or 10.61 points to 7,198.97.

The financial sector index rose slightly by 0.16%, consumer cyclicals by 0.02%, and non-cyclicals by 0.73%. However, the property and real estate sector slipped by 0.01%. (KR/ZH)