Photo: Special

JAKARTA (TheInsiderStories)The Indonesian central bank (BI), revealed its future policy directions for 2018, vowing to maintain sustainability and strengthen the momentum of domestic economic recovery.

Since 2016, BI has cut its rate by 150 basis points (bps), an easing facilitated by lower inflation for two years in a row. Governor Agus Martowardojo said the central bank will focus on maintaining macroeconomic stability in a financial system that intends to support the economic growth of 5.1-5.5 per cent next year.

He added the policy direction will be filled in various ways to support efficiency and productivity improvement, in order to quickly transform into a strong, sustainable, balanced and inclusive economy for 250 million citizens.

Financial system policy

Furthermore, Martowardojo said, BI will encourage domestic banks to provide efficient hedging instruments for corporations. Through judicious hedging, the country will easily shift away from the foreign debt vulnerability that already reached US$34.5 billion in November.

BI will issue a regulation regarding Rupiah Denominated Global Bond including Komodo Bonds to support financing of infrastructure development. This regulation will apply to any corporation which will issue global bonds in rupiah denominations to meet prudential compliance, in compliance with foreign debt issuance rules.

This regulation will be issued by central bank following the successful $225 million bond issuance by state-owned toll operator PT Jasa Marga Tbk (IDX: JSMR) on the London Stock Exchange last week.

Monetary Policy

BI will assure the maintenance of inflation around 2.5-4.5 per cent and a current account deficit in a range of 2-2.5 per cent of GDP in 2018. BI projects loans growing by 10-12 percent next year, supported by a trending recovery of oil and coal prices next year.

BI’s decision on interest rate will also depend on the Federal Reserve‘s stance on its benchmark rate. The governors project the Federal Reserve will raise the rate three times in 2018 and twice in 2019.

Macroprudential Policy

Martowardojo assured BI will continue to increase the resilience of the financial system against potential systemic risk amid the challenge and complexity of existing financial system dynamics. The Bank will also implement a macro prudential liquidity buffer as a form of improvement of the secondary Minimum Reserve Requirement.

The Minimum Reserve Requirement (MRR) will allow a bank to maintain its daily liquidity by adjusting the ratio and extending the time banks need to keep their total rupiah deposits with the central bank.

Along with that, BI will implement a Macro prudential Liquidity Buffer (MPLB) by which banks are required to maintain a certain amount of liquid instruments covering all bank securities that may be repurchased into BI, in accordance with Monetary Operation provisions.

The amount of the MPLB ratio will be determined by considering the financial cycle and liquidity condition of the financial system at any given point. Unlike the Liquidity Coverage Ratio, MPLB will be charged to all banks.

The policies were believed to exert a positive impact on macroeconomic and micro banking, while the policy helps financial market deepening through the creation of new instruments to absorb additional liquidity during the average Rupiah Reserve Requirement.

On the micro side, this policy helps banks improve the efficiency of daily liquidity management and optimize revenue while maintaining prudent principles. Policy improvements will be pursued by expanding the average MRR implementation to include MRR Rupiah and in foreign exchange for both conventional and sharia banks.

Currency Policy 

BI will strengthen bilateral cooperation to improve the settlement of bilateral trade transactions by using local currency or a Local Currency Settlement (LCS).

These efforts are to be pursued through the development of LCS schemes facilitated by central bank authorities, such as the Bilateral Currency Swap Arrangement (BCSA) and the Appropriate Cross Currency Dealers (ACC) LCS scheme involving both the authorities and the private sector, implemented early next year.

Indonesia has signed cooperation agreements with Thailand, Malaysia, China, Japan and soon will discuss the possibility of joining the deal with the Philippines.

Payment System Policy

In early December, BI launched a national payment gateway to integrate various existing payment systems into one single platform, providing efficient service for banking customers.

With this system, the central bank will respond to today’s rapid development of digital technology. BI will issue rules for the financial technology players, including e-commerce actors, aiming to implement prudential principles, safeguard business competition, raise risk control and secure consumer protection.

From Jan. 1, 2018, BI will apply a regulation prohibiting Fintech companies, e-commerce or service providers of payment systems from involving their business with virtual currencies such as Bitcoin.

Written by Elisa Valenta, email: elisa.valenta@theinsiderstories.com

LEAVE A REPLY

Please enter your comment!
Please enter your name here