Rupiah will Strenghten in Long Round, says BI
Governor of Bank Indonesia Perry Warjiyo. - Photo by
JAKARTA (TheInsiderStories)– Bank Indonesia (BI) decided to increase its 7-day Reverse Repo Rate (BI-7DRR) by 25 bps to 6.00 percecnt. The Bank also rise the Deposit Facility interest rate by 25 bps to 5.25 percent, and the Lending Facility interest rate by 25 bps to 6.75 percent.

BI Governor Perry Warjiyo explained, the decision was a further step to reduce the current account deficit (CAD) at the safe level.

“The increase in policy rates is also to strengthen the attractiveness of domestic financial assets anticipating a rise in global interest rates in the next few months,” he told reportesr at BI Office in Jakarta today (15/11).

Meanwhile, to increase the flexibility and distribution of liquidity in banks, BI increased the portion of the average Rupiah Statutory Reserves (conventional and sharia) from 2 percent to 3 percent and increased the ratio of Macro-prudential Liquidity Buffers (conventional and sharia) which could be repurchasing agreement (repo) to Bank Indonesia from 2 percent to 4 percent, respectively from Third Party Funds.

In the field of macro-prudential policy, BI also maintains the Countercyclical Capital Buffer ratio of 0 percent and the Macro prudential Intermediation Ratio in the target range of 80 percent to 92 percent.

Going forward, the central bank said will be optimizing the policy mix to ensure continued macroeconomic and financial system stability. Bank Indonesia also aim to strengthen coordination with the Government and related authorities to maintain economic stability and strengthen external resilience, including to control the CAD so that it decreases towards the range of 2.5 percent of GDP in 2019.

“The mix of Bank Indonesia policy and the government is believed to be able to manage the impact of changes in the global economy so that the economy remains resilient amid global uncertainty,” said Warjiyo.

To further encourage financial market deepening, especially the rupiah money market, BI issued rules on interest rate derivative transactions, namely Interest Rate Swap and Overnight Index Swap. These rules can enrich alternative hedging instruments against changes in domestic interest rates.

With the issuance of IndONIA and efforts to strengthen JIBOR, this policy is expected to be able to support the formation of a more transparent yield curve on the money market and debt market, and further strengthen the transmission of monetary policy and encourage the development of the debt market, both issued by the government and corporations.
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