ASEAN KEY DESTINATIONS
Bank Indonesia to close in on ‘forward market’ following newest economic package
Bank Indonesia (BI) announced its latest policy package on Wednesday to complement the government’s second economic package issued on Tuesday, signaling that it would intervene in the forward (derivative) market more often, the central bank’s spokesman said.
According to BI, the new package focused on three aspects: maintaining the rupiah’s stability, strengthening the liquidity and bolstering foreign exchange supply and demand management.
It was the second policy package after BI released an earlier one on Sept. 9.
BI's deputy director Andiwiana said the central bank would enter the domestic foreign exchange market to stabilize the rupiah, combining an intervention in the spot market and the forward market at the same time.
“Maintaining balance in the forward market is important to alleviate pressure on the spot market,” Andiwiana said in a statement.
BI plans to issue new instruments in the market with a longer tenor, namely BI Deposit Certificates (SDBI) with a maturity of three months along with the Reverse Repo of Tradeable Government Securities (SBN) maturing in two weeks, with the aim of maintaining the readiness of rupiah, Andiwiana said.
Reverse Repo is the purchase of securities with an agreement to sell them at a higher price at a specific future date, which usually created as a "secured loan", according to Andiwiana.
As for the foreign currencies supply-demand in the forward market, BI would increase the threshold of the forward selling transaction, from US$1 million to US$5 million per transaction, per customer, he said.
According to Andiwiana, the scope of the underlying assets for the forward selling contract would be broadened, both for the domestic and offshore market.
The central bank would also issue Foreign Currency BI Securities (SBBI) to deepen the foreign exchange market. The holding period of BI Certificates (SBI) would also be shortened to attract foreign capital inflows, from a one-month period to a one-week period, he said.
On the other hand, he added, the monetary authority would create greater transparency and better information availability in the forex reserve usage, by requiring business players to report their use of foreign exchange transactions at a certain value.
Andiwiana said that the central bank would work together with the government to channel Indonesia’s foreign exchange earnings from exports (DHE) to the local bank, by giving a discount in the interest tax paid on term deposits for exporters depositing their DHE.
“The policy synergy between BI and the government through this second September policy package is expected to strengthen macroeconomic stability and the structure of the Indonesian economy, including the financial sector, thus bolstering resilience,” Andiwiana said.
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