Bank Indonesia reported the Consumer Confidence Index (CCI) fell to 124.7 in July compared to June 126.4 - Photo: Special

JAKARTA (TheInsiderStories) – Bank Indonesia (BI) has been implementing the policy to reduce the minimum mandatory current account (MMCA) ratio since July 1, 2019. The rule is expected to boost the liquidity for banks to Rp100 trillion (US$7.09 billion), said BI’ governor Perry Warjiyo in Jakarta last week.

Liquidity is expected to be channeled into credit and contributed to economic growth until the end of this year. Warjiyo explained the direct liquidity of the decline of MMCA is only Rp25 trillion. However, that figure could be rise to Rp100 trillion if it takes into account the broad impact.

According to him, the circulation of banking money can increase, through the credit mechanism. If we take into account the potential money multiplier, it can add liquidity of Rp100 trillion, he said.

On July 1, the MMCA ratio was reduced by 50 basis points. Thus, the obligations of conventional commercial bank reserve requirements are to increase to 6 percent of deposit from previously of 6.5 percent, while Islamic banks are 4.5 percent from the previous 5 percent.

When liquidity increases by Rp25 trillion, the potential for bank credit will also increase. Then, if the credit is used for economic activities, the results will certainly be re-entered into financial services and listed as banking deposits.

“After that, the bank will redistribute into credit. Then the cycle will repeat itself so that the potential for multiplying money continues to increase,” Warjiyo said.

The decline in the GWM ratio is a step taken by the central bank so that economic growth can continue to run without using the transmission of the benchmark interest rate.

Previously, BI hold it’s 7 days reverse repo rate at 6 percent. The decision has been taken because the board assessed that the domestic and global situation still have uncertainty.

Warjiyo explained that the central bank sees the trade war issue between the United States (US) and China and other global issues are the matter of the policy. The tension getting high and give impacted to the global economy.

“The trade tension has made the global trade volume down and slows down the economy in several countries,” he said.

Slowing economic growth makes many central banks make dovish policies. It will be a challenge for Indonesia to maintain foreign inflow, he added.

In Indonesia, the board estimated a slowdown economic growth will be seen in the second quarter (2Q) of 2019 cause exports declining due to the slow down world demand. However, the positive stimulus from Standard & Poors was a new engine to strengthen the local currency.

Warjiyo revealed BI will deepen the money market to maintain the strengthening of the Rupiah. In the finance sector, BI targeting the national loan growth around 10 to 12 percent with the realization during four months period at 11.1 percent. This growth is still below the optimum level, but he promised the central bank will strengthen the macroprudential to drive the loan growth.

One of the macro-prudential policies undertaken is through a reduction in statutory reserves to a minimum of 6 percent for commercial banks. The decline is also made for Islamic banks to 4.5 percent.

US$1=Rp14.200

Written by Staff Editor, Email: theinsiderstories@gmail.com