Photo by Bank Indonesia

JAKARTA (TheInsiderStories) – Indonesia’s central bank (BI) has announced it will permit hedging transactions in Euros, starting on Wednesday, Oct. 25, to support efforts to broaden the use of foreign currencies in the economy.

Previously, BI opened Swap Hedging Transactions in Japanese Yen (JPY) on July 12, 2017 – but specifically for the central bank. The addition of Euro notes for hedging is part of Bank Indonesia’s attempt to diversify financing sources in the economy, to deepen the money market and stabilize the Rupiah.

In a statement, Agusman, BI’s spokesperson, explained that through this policy the central bank expects to support diversified international investment and trade in various currencies.

“In addition, transactions are expected to help manage liquidity and maintain the stability of the Rupiah exchange rate,” Agusman stated on Monday (23/10).

The time frame for hedging swap transactions with Bank Indonesia in non-US-dollar currency is every Wednesday between 2 p.m. and 4 p.m., local time.

A bank may apply for a Swap Hedging Transaction to Bank Indonesia for Euro currency, with a minimum nominal submission of one million Euros, with multiples of EUR100,000 and tenure for three or six months available. Hedging in foreign currency requires a document submission of underlying assets.

Currently, average transaction volumes in the Indonesian foreign exchange market total around US$6 billion per day, of which 40 percent are derivative products. That number is considerably higher than the figure marked in 2013, when transaction volume only totaled $1 billion per day.

In 2014, Bank Indonesia instituted a requirement for all private companies to hedge their foreign liabilities, comprising three components: exchange rate risk, liquidity risk and over-leverage risk.

Indonesia’s external debt at the end of August 2017 stood at $340.5 billion, or 4.7 percent (YoY). The private sector has accumulated $165.6 billion of that figure, accounting for 48.6 per cent. It rose 0.1 per cent (YoY) versus a 1.1 percent drop (YoY) in July.

Meanwhile, public sector (government and central bank) external debt amounted to US$174.9 billion (51.4 percent of the total), rising by 9.5 percent (YoY) versus a 9.2 percent (YoY) uptick in the previous month.

According to BI data, around 2,660 companies had foreign loans in the first half of the year, 88 percent of which had hedged them for the following three months.

Writing by Elisa Valenta, Email: elisa.valenta@theinsiderstories.com