Bank Indonesia (BI) launched a policy measures to maintain economic stability amid the spread of COVID-19, said the governor today (04/14) - Photo by BI Office

JAKARTA (TheInsiderStories) – Las Friday, Bank Indonesia (BI) refined the provisions on the reserves requirement for foreign exchange (forex) for conventional bank to curb the Rupiah movement. The new policy came into force on March 16, said the policymaker.

The central bank decided to reduce the reserves requirement ratio from the original 8 percent to 4 percent to boost the forex liquidity in the banking system and simultaneously reduce pressure on the money market.

It said, the revision was a follow-up to one of the five further policy steps to maintain monetary and financial market stability, including mitigating COVID-19 risk to the economy. The five steps are increase the intensity of the triple intervention so that the Rupiah moves in accordance with its fundamentals and follows the market mechanism.

For this reason, BI will optimize its intervention strategy in the domestic non delivery forward market, the spot market, and the government bond market, to minimize the risk on the local currency. The Bank hopes the policy will increase forex liquidity in the banking sector by around US$3.2 billion and simultaneously reduce pressure on the forex market.

The central bank also reducing the reserves requirement for local currency by 50 basis points (bps) for commercial banks who conducting export-import financing activities. The policy will be implemented for nine months since April 1, that it can be re-evaluated.

“We expanding the types of underlying transactions for foreign investors so that they can provide alternatives for hedging Rupiah ownership. Reaffirming that global investors can use global and domestic custodian banks in conducting investment activities in Indonesia,” BI said in an official statement released on Friday (03/13).

On November 2019, the central bank has relaxed the reserve requirement for commercial and sharia banks by 50 bps to 5.5 percent and 4 percent, respectively. BI’ governor Perry Warjiyo, the policy was taken to maintain economy growth amid slowing global economy.

He continued, through the policies, the Bank aimed to drive the loan growth and enlarge financing at the same time stabilizing the financial system. In addition, the policymakers wants to kept the countercyclical capital buffer at zero percent and buffer ratio of macro-prudential policy at 4 percent with repo flexibility at 4 percent.

Going forward, said the governor, BI will monitor global and domestic situation in deciding the monetary policy. In this year, the global economy growth is estimated around 3 percent, lower than 2018 level at 3.6 percent.

Even some countries has relaxed its monetary policy by cutting the interest rate, it was not adequate to anticipate the slowdown of global economy growth, he adds.

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