JAKARTA (TheInsiderStories) - Indonesia central bank, Bank Indonesia (BI), has released a circular letter on the Jakarta interbank offered rate (JIBOR) rule to improve market liquidity and deepen the country’s money market. The Bank said the changes will become effective starting June 1.
JIBOR is a reference interbank rate derived from unsecured loan transactions offered by one contributor bank to another in Indonesia’s money market — which indicates banks’ liquidity.
Based on the BI statement, BI will extend the transaction window time to 20 minutes from previously 10 minutes. It will also allow longer rupiah lending period to three months from only a month.
BI will also double the maximum transaction allowed to Rp 20 billion from Rp 10 billion with the total transaction must not exceed Rp 20 billion a day.
Tirta Segara, executive director at Bank Indonesia, said the improvement is meant to provide more credible market interest rates benchmark, widely used by the people, especially by the banking industry. He added, the increasing use of JIBOR is expecting to create market liquidity and in turn, will deepen the money market.
Repo Market
Head of Department Deepening Financial Market Development BI Nana Hendarsyah expects, Repurchase Agreement (Repo) or sale of securities to be bought back within a certain period was steady at Rp 1 trillion per day by the end of 2016. Currently, the volume of repo transactions is still up and down in the range of Rp 100 billion to Rp 600 billion.
He added, Global Master Repo Agreement (GMRA) initiated by the Financial Service Agency earlier this year, one of which prohibits mini repo transactions. From a total of 56 banks that are committed in the GMRA, currently only 12 banks that conduct repo transactions.
“Almost no transactions throughout January-February because banks still need some time to learn with GMRA, especially foreign banks,” he said.
The volume of financial market transactions is still shallow in the range of $10 to $13 trillion per day. From the term structure of about 90 percent is in the overnight period.
While the proportions, dominated by interbank and foreign exchange swaps, repo transaction, secondary T-bills, BI certificate, secondary BI deposit certificate, Negotiable Certificate Deposit, commercial paper and promissory notes.
“Hence, the deepening of the money market is very important in maintaining monetary stability,” says Person. (*)