CMEA Darmin Nasution and BI's Governor Perry Warjiyo at the ISEF Seminar in Surabaya, East Java (12/12) - Photo by Bank Indonesia

JAKARTA (TheInsiderStories) – Indonesian central bank (BI) plans to issue short-term Sharia bond as a new monetary instrument and to support Islamic financial markets, said the governor today (12/12). Several central banks abroad like Malaysia, Bahrain, and Jordan already utilize these instruments for monetary instrument.

Currently, the central bank already own such as are BI Syariah Certificates, Bank Indonesia Syariah Facilities (FASBIS), reverse sharia repo, and Sharia bond repo.

The Sharia bond’ maturity will be two weeks, one month, three months, six months, nine months, and 12 months. Bank Indonesia is still waiting for the regulation legalisation, before releasing the instrument.

“Islamic finance is not only sourced from syndicated financing for the construction of infrastructure and social financing from the Hajj fund for the benefit of the people, but also from State and corporate Sharia bond to finance the government projects,”The deputy governor Erwin Rijanto said in an official statement.

The development of the Islamic financial market in Indonesia is indicated by the increase in the total accumulated corporate SUKUK issuance which was previously recorded at Rp20.4 trillion in 2016, to Rp 35.6 trillion (US$24.55 billion) in October 2018.

While the average transaction in the Islamic money market in 2016 was still Rp780 billion and the average from January-October 2018 has grown to Rp947 billion.

In addition, syndication of Islamic banking financing has been carried out in several projects, including electricity projects worth Rp4 trillion, the Pasuruan-Probolinggo toll road project worth Rp1.3 trillion, Pemalang-Batang worth Rp400 billion and channeling the social benefits of the Hajj funds to SMEs worth approximately Rp 50 billion.

Aside from issuing Sharia bonds, BI has also used some financial vehicles to intervene in the Rupiah depreciation, specifically, in the domestic non-deliverable forward market by accepting a $74 million bid from a $30 million indicative target. Other than that, the central bank has also entered the spot market and state securities in the secondary market.

These interventions haven’t had a major impact, as the Rupiah is still being hit by global risk-off, the tension increase between United States and China amid the Huawei top official’s detainment, the United Kingdom’s House of Commons vote postponement over Brexit, and the Indian Central Bank Governor stepping down became some factors that are weighing on the Rupiah and other currencies.

The Indonesian central bank has also purchased Rp106.4 trillion of government bond, consisting of Rp31.7 trillion in the secondary market and Rp74.7 trillion in the primary market. As of December 11th, BI holds Rp216.5 trillion in state securities.

The value is considered insufficient while an official explained that it needs additional State securities for monetary instruments. The Rupiah continued its depreciation, slumping by 0.66 percent yesterday, reaching it’s worst position in December. Foreign funds also recorded Rp1 trillion net sell in the stocks market, dragging on the Jakarta Composite Index.

US$1: Rp14,500

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