Banking sector liquidity has come back into focus following Bank Indonesia's issuance of IDR32tn in SRBI across two auctions during the third week of July. Amid ongoing efforts to support the rupiah and attract foreign capital inflows, outstanding SRBI remains close to IDR1.0 quadrillion, with banks continuing to hold the largest share of the instrument. This suggests a substantial amount of banking system liquidity remains tied up in SRBI, likely keeping funding cost pressures elevated in the near term.
 

That said, our economist is beginning to see several encouraging signs. Demand at recent SRBI auctions has moderated, as reflected in lower total bids, while SRBI yields have started to stabilize after rising in line with Bank Indonesia's policy rate hikes. At the same time, open market repo activity increased significantly in June, indicating that Bank Indonesia has become more active in providing liquidity to the banking system.
 

These developments suggest liquidity pressures on the banking sector could gradually begin to ease, although normalization is likely to be gradual. Our economist believes that lower reliance on SRBI, alongside increased repo operations, could help alleviate funding cost pressures and gradually support the stabilization of net interest margins (NIMs). Even so, Bank Indonesia's policy direction over the coming months will remain the key determinant of how quickly banking sector funding conditions improve.