JAKARTA (TheInsiderStories) - Coordinating Minister for Economic Affairs Darmin Nasution supports Bank Indonesia (BI) plans to issue new monetary policy to increase the liquidity and maintaining the stability of inflation.
“We need to look to other policy tools or effective instrument to influence the expansion or economy contraction, in the form of liquidity increased or vice versa. In theory it would affect inflation. It requires policy tool that is more fitting,” Minister Darmin Nasution said.
Currently, he added, the central bank only uses BI Rate as the monetary instrument to keep the stability of Indonesian economy and not enough to support the government plans to stimulate the economic activities.
Darmin, who is also former BI governor, admitted that BI has talked with the government about the plan but denies to disclose the new policy to media.
BI’s Senior Deputy Governor Mirza Adityaswara admitted the bank will announce the new monetary policy on March 15. According to several sources it is likely the seven-day Reverse Repurchase Agreement or Reverse Repo reference rate and is likely to implement it in August.
A reverse repo is a transaction of government bonds (SUN) from BI to banks with a term that they can be repurchased by BI in a certain period of time. The repo reference rate is currently at 5.50 percent, while the BI rate is 6.75 percent. The central bank has cut that BI Rate by 75 basis points so far this year.
BI now also uses two other rates to affect the overnight money market: the rate it gives banks for their deposits at the central bank, which is currently 4.75 percent, and rate it charges for borrowings, now at 7.25 percent.
Market deepening
Last week, BI’s governor Agus Martowardojo said, the bank together with Financial Service Agency (OJK) and Finance Ministry explore various instruments to develop money market more attractive. The three parties explore to develop derivative transactions such as promissory notes, reverse repo transaction and sharia products.
“So, the financial markets will be deeper. There will be more investors, more instruments,” he said.
The BI governor said BI is determined to make the financial markets to be more efficient.
Muliaman Hadad, the Chairman of OJK added, the agency also explores ways to create limited mutual funds based on infrastructure projects. While, Finance Minister Bambang Brodjonegoro added the government has released regulations to drive the real estate investment funds (REITS) market in the country as part to attract investor invest.
“The point is that we want to multiply the securities that can be traded, reflecting the structure longer terms, so that all necessary short term to long term could be filled,” Muliaman said, adding that these products will be issued in cooperation with BI. (*)