Bank Indones Refined Foreign Exchange Open Market Operations to Stabilize Rupiah - Photo by the Central Bank Office
JAKARTA (TheInsiderStories) – Indonesian central bank (BI) refined the regulation concerning of foreign exchange open market operations. Open market operations on the foreign exchange market are one of BI’ monetary policies.
The new policy contained in the Bank Indonesia regulation Number 21/6/PADG/2019 concerning the Third Amendment to the Board of Governors’ Member Regulation Number 20/6/PADG/2018 concerning Open Market Operations.
In implementing this policy, the Bank said, its necessary to make the auction more efficient through the improvement of the automation system for auctioning of the foreign exchange. This improvement its expect could support the stability of Rupiah.
There are at least three changes on the Open Market Foreign Exchange Market auction mechanism such as transactions in term deposit, conventional open market operations in foreign currencies, swap transactions, and term deposit transactions in sharia open market operations in foreign currencies.
Then, the participant should register and updating of the information to take part in the auction, submitted the bids, correcting the bidding, and disburse the transaction before falling time of the term deposit.
Previously, BI had said it will act quickly to maintain the stability of the Rupiah against the US dollar. These actions range from regular Domestic Non Deliverable Forward (DNDF), Term Repo and Forex Swap auctions.
Executive Director of Monetary Management Department of BI Nanang Hendarsah stated that the central bank will maintain the stability of the rupiah exchange rate by holding regular DNDF auctions at 8:30 a.m local time.
“We will also remain in the market to maintain the spot rate stability. If capital flows out of state securities have the potential to trigger volatility in the rupiah exchange rate, BI will also enter the market to buy state securities,” he said.
In order to increase the availability of Rupiah liquidity for banks, BI also held regular auction of expansion open market operation three times a week, namely through term repo and foreign exchange swap auctions.
“The auction schedule has been set in the next six months from March 21 until Sept. 19, as can be seen on the Bank Indonesia website,” he added.
Hendarsjah explained, total liquidity injection during 2018 was Rp345.5 trillion (US$24.50 billion). While, in January – February 2019 the total liquidity injection through the Repo Term was Rp76.5 trillion and through a forex swap auction Rp243.33 trillion.
In the term repo auction, central bank expands liquidity to financing by guaranteeing collateral in the form of state securities or Bank Indonesia certificates, in the stipulated tenor.
Furthermore, in the forex swap auction, Bank Indonesia expands rupiah liquidity to banks, and receives foreign exchange on the first leg, and receives back Rupiah and submits foreign exchange on the second leg. The tenor swap are 1, 3, 6 and 12 months.
Yesterday, Rupiah closed at 14.130 against US dollar, up 0 21 percent from the previous trading on Monday.
US$1: Rp14,100
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