JAKARTA (TheInsiderStories) – Bank Indonesia (BI) announced has changes its monetary policy from the one-way monetary operations into a two-way monetary operation. With this strategy, the central bank said will not act contraction strategy by expanded the monetary policy strategy.
Executive Director of the Monetary Management Department BI Nanang Hendarsah explained that in this two-way monetary operation, BI would absorb excess liquidity from the bank with a contraction strategy then provide cash to lack-liquidity banks through expansion strategies. There are two instruments will be used, such as the term repurchase agreement (repo) and foreign exchange swap.
“So every day there will be an auction for open market operations both on the contraction and expansion side,” he told reporters on Monday (05/06).
To support this, the Bank will added more instrument with long tenor from previously only existed one week and one month, coupled with a 3-month tenor. While for monetary contraction operations, there has been no change.
Furthermore, in anticipation of availability liquidity during Ramadhan and Eid al-Fitr, the central ban will deactivate the auction of BI Certificates for nine and 12-month tenors. By this deactivation, the cash is not locked in the long term tenor, but shifts to a shorter profile tenor.
“We will monitor liquidity during Ramadan, if it is safe and sufficient, we will reactivate it. In the future with the normalization of policies in the US, liquidity management will become a challenge because liquidity will not be as big as when developed countries conduct quantitative easing,” he stated.
Also, other things that will also affected the liquidity, such as the movement of capital flows, the rising demand for foreign currencies, government financial transactions and the banking structure.
“BI tries to anticipate this because if there is no permanent option of funding, it can disrupt growth,” said Hendarsah.
Previously, BI had tried to get around cash in banks by loosening reserve requirements so the interbank money market could increase to an average of Rp20 trillion (US$1.41 billion). However, there is still much liquidity circulating on the money market without collateral, while the Bank encourages collateral-based transactions or repo.
Meanwhile, responding to the rupiah condition which continued to weaken, Hendarsah rated, this happened because of the dynamics in the global economy. The Federal Reserves decision not to raise the benchmark rate triggered a strengthening of the US Dollar.
“The dynamics are usually short-term and will change in a short time,” he noted.
Moreover, from the domestic side, the release of economic growth reflects a stable condition, compared to other countries in the region although it grew below market expectations.
Hendarsah said, BI will be in the market in anticipation to stabilize the exchange rate. BI has intervened in government bonds, both in the spot market and domestic non-delivery forward.
He hopes in the third quarter of 2019, there would be an adjustment in the Rupiah rate due to the supply and demand for rupiah which had returned to strengthen.
On Monday (06/05), the local currency priced at Rp14,290, or weakened 0.28 percent, compared to the closing position of trading on last weekend.
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