ExplPolicy Package on Strengthening Monetary Manag
Explanation to the
Policy Package on Strengthening Monetary Management and Financial Market
Development
In the meeting on Tuesday, 15 June 2010, Bank Indonesia Board of Governor decided on a policy
package to strengthen monetary management and financial market development, as series of
macroeconomic policy package which includes among others the extension of the SBI maturity
profile. This policy direction is to respond to and anticipate the financial market dynamics
stemming from both domestic and global. In general, this policy is aimed to enhance monetary
policy transmission, strengthen financial system stability, and bolster financial market deepening
which in turn support the sustainability of macroeconomic stability and the momentum of
economic recovery. It is important to note that this policy package is not in any way related to
capital control measures and is consistent with the free foreign exchange system adopted by
Indonesia thus far.
1. Policy Background
1.1. In the midst of strong pressure from the global crisis, the Indonesian economy during 2009
has been able to get through the challenging year with a remarkable achievement. This has
been increasingly reinforce optimism for a continuing process of economic improvement in
the future.
1.2. Nevertheless, the dynamic of the economy forward continues to face several challenges
that may potentially hamper the acceleration of economic growth and price stability. The
challenge particularly related to the large influx of capital flow into emerging economies,
including Indonesia, amid the vulnerability of global economic recovery and the instability
of global financial market. Meanwhile, the domestic economy faces challenges mainly
associated with the excess liquidity in the banking system and the large share of portfolio
flows in the capital account structure, provided that the domestic financial market are still
shallow while the real sector are still confronted with some structural problems.
2. Policy Measures Taken
2.1. In response to and anticipating the challenges above, Bank Indonesia views the necessity to
continuously strengthen monetary and financial system stability to maintain the
sustainability of medium to long term economic growth. The development of the domestic
financial market must be further broadened so as existing excess liquidity can be effectively
channeled to finance the real sector and in return can strengthen monetary policy
management. Meanwhile, the abundant inflow of capital, in particular portfolio investment
1
must be vigilantly managed to ensure its benefit to the stability of the rupiah exchange rate
and the accessibility of medium to long term domestic financing. In general, this policy is
aimed to enhance the effectiveness of monetary policy transmission, strengthen financial
system stability, and support the deepening of the financial market which in turn can
support the sustainability of macroeconomic stability and economic recovery momentum.
2.2. The policy package covers the enhancement of instruments and regulations both in the
rupiah and foreign exchange money markets to further strengthen monetary management,
improve bank prudential aspects, as well as deepen financial market. The policies include:
i)
widening of the corridor of the O/N interbank money market rate
ii) revisions of regulations on banks’ FX net open positions (NOP)
iii) imposing minimum 1 month holding period for Bank Indonesia certificates (SBI) both in
primary and secondary markets
iv) introduction of the non-securities monetary instrument in the form of term deposit
v) issuance of the 9 and 12 month SBI
vi) implementation of the triparty repurchase (repo) of Government Debt Securities (SBN)
3. Explanation of Individual Policy
3.1. Widening of the corridor of the O/N interbank money market rate. Widening of the
corridor of the O/N interbank money market rate is carried out by adjusting the standing
facilities rate to the BI Rate. This policy is intended to further develop the interbank money
market by encouraging banks to frequently involve in interbank money market in fulfilling
short term liquidity needs prior to engaging monetary instruments provided by Bank
Indonesia. The standing lending facility rate is increased from BI Rate + 50 bps to BI Rate +
100 bps and the standing deposit facility rate is decreased from BI Rate – 50 bps to BI Rate
– 100 bps. Hence, with the current BI Rate of 6.5%, the standing lending facility rate is 7.5%
and the standing deposit facility rate is 5.5%. This policy is effective as of Thursday, 17 June
2010.
3.2. Revisions of regulations on banks’ FX net open positions. The policy is intended to buttress
the deepening of the domestic foreign exchange market while keeping in consideration
bank prudential aspects. The On Balance Sheet NOP limit of maximum 20% of capital is
abolished, however, the Overall NOP is still maintained at 20% of capital. The existing realtime compliance on NOP limit is further relaxed into 30 minutes window time. This policy
is effective as of 1 July 2010.
3.3. Implementation of the minimum one month holding period of Bank Indonesia Certificate
(SBI). This policy requires SBI owners in the primary and secondary market to retain a
minimum one month (28 days) holding period. During that period, the owner of SBI is
prohibited to transfer the SBI ownership either by way of an outright or repo to other
2
party, except repo to Bank Indonesia. This policy is imposed to both resident and nonresident investors and is intended to lengthen the ownership and the transaction period of
SBI in the secondary market. Nevertheless, to fulfill its short term liquidity needs, a bank
holding SBI can conduct repo transaction with Bank Indonesia which has been available
thus far. This policy is effective as of the next monthly SBI auction on 7 July 2010.
3.4. Introduction of the non-securities monetary instrument in the form of “term deposit”.
Term deposit is a liquidity management instrument of Bank Indonesia without an
underlying debt security. This instrument is non-transferable, but can be redeemed prior to
maturity (early redemption) with subject to certain requirements. Banks may use this
instrument for short-term liquidity management in addition to other available instruments
provided by Bank Indonesia such as the FASBI and repo. The term-deposit instrument will
be provided by Bank Indonesia through an auction mechanism with a 1 month tenor,
effectively as of July 7, 2010.
3.5. Issuance of the 9 and 12 month SBI. The issuance will be conducted on a monthly basis
through an auction mechanism and calculation similar to the SBI issuance of other maturity
types. This measure is a continuation of the extension of the maturity profile of the 3 and 6
month SBI which is fully implemented in June. The issuance of the 9 and 12 month SBIs
completes the maturity structure of the SBI to a 1 year period. This policy measure will
supports the deepening of the domestic money market in terms of the availability of
instruments, maturity profile, and the formation of the short term interest rate structure.
The issuance of the 9 month SBI will be effective as of the monthly SBI auction in the
second week of August 2010, while the 12 month SBI on the second week of September
2010.
3.6. Implementation of the triparty repurchase (repo) of Government Debt Securities (SBN).
The triparty repo SBN is Bank Indonesia’s liquidity management activity through reverse
repo transaction with underlying asset in the form of SBN acquired from qualified parties
such as Pension Fund and Insurance. With this measure, the SBN that normally held until
maturity by these institutions can be traded in the secondary market to support domestic
financial market deepening and the enrichment of monetary instruments. To implement
the regulation, Bank Indonesia will cooperate with the Government and other related
institutions in preparing the necessary regulations and mechanism. The policy is expected
to be effective in 2011.
4. Policy Implementation
The various policy measures will be implemented in stages since June 2010 and will be
evaluated from time to time. The early announcement of the policy measures is expected to
provide room to market participants to make necessary adjustments.
3
No.
1
Policy
Implementation
2
Widening of the corridor of overnight (O/N)
interbank money market rate to BI Rate ± 100 17 Juni 2010
bps
Revision of the Net Open Position
1 Juli 2010
3
Minimum One Month Holding Period of SBI
7 Juli 2010
4
Rupiah Term Deposit
7 Juli 2010
5
9 and 12 month SBI
9 month SBI : week II August 2010
12 month SBI: week II Sept 2010
6
Triparty Repo
2011
5. Closing
The above-mentioned policy measures will be further regulated in Bank Indonesia regulations.
Further inquiries can be submitted to :
Monetary Operation Help Desk
email helpdesk_opt@bi.go.id
phone 6221 381-8343, 381-8339, 381-8350, 381-8117, 381-8184
fax 6221 231-1347, 380-1766
website www.bi.go.id
4
Policy Package on Strengthening Monetary Management and Financial Market
Development
In the meeting on Tuesday, 15 June 2010, Bank Indonesia Board of Governor decided on a policy
package to strengthen monetary management and financial market development, as series of
macroeconomic policy package which includes among others the extension of the SBI maturity
profile. This policy direction is to respond to and anticipate the financial market dynamics
stemming from both domestic and global. In general, this policy is aimed to enhance monetary
policy transmission, strengthen financial system stability, and bolster financial market deepening
which in turn support the sustainability of macroeconomic stability and the momentum of
economic recovery. It is important to note that this policy package is not in any way related to
capital control measures and is consistent with the free foreign exchange system adopted by
Indonesia thus far.
1. Policy Background
1.1. In the midst of strong pressure from the global crisis, the Indonesian economy during 2009
has been able to get through the challenging year with a remarkable achievement. This has
been increasingly reinforce optimism for a continuing process of economic improvement in
the future.
1.2. Nevertheless, the dynamic of the economy forward continues to face several challenges
that may potentially hamper the acceleration of economic growth and price stability. The
challenge particularly related to the large influx of capital flow into emerging economies,
including Indonesia, amid the vulnerability of global economic recovery and the instability
of global financial market. Meanwhile, the domestic economy faces challenges mainly
associated with the excess liquidity in the banking system and the large share of portfolio
flows in the capital account structure, provided that the domestic financial market are still
shallow while the real sector are still confronted with some structural problems.
2. Policy Measures Taken
2.1. In response to and anticipating the challenges above, Bank Indonesia views the necessity to
continuously strengthen monetary and financial system stability to maintain the
sustainability of medium to long term economic growth. The development of the domestic
financial market must be further broadened so as existing excess liquidity can be effectively
channeled to finance the real sector and in return can strengthen monetary policy
management. Meanwhile, the abundant inflow of capital, in particular portfolio investment
1
must be vigilantly managed to ensure its benefit to the stability of the rupiah exchange rate
and the accessibility of medium to long term domestic financing. In general, this policy is
aimed to enhance the effectiveness of monetary policy transmission, strengthen financial
system stability, and support the deepening of the financial market which in turn can
support the sustainability of macroeconomic stability and economic recovery momentum.
2.2. The policy package covers the enhancement of instruments and regulations both in the
rupiah and foreign exchange money markets to further strengthen monetary management,
improve bank prudential aspects, as well as deepen financial market. The policies include:
i)
widening of the corridor of the O/N interbank money market rate
ii) revisions of regulations on banks’ FX net open positions (NOP)
iii) imposing minimum 1 month holding period for Bank Indonesia certificates (SBI) both in
primary and secondary markets
iv) introduction of the non-securities monetary instrument in the form of term deposit
v) issuance of the 9 and 12 month SBI
vi) implementation of the triparty repurchase (repo) of Government Debt Securities (SBN)
3. Explanation of Individual Policy
3.1. Widening of the corridor of the O/N interbank money market rate. Widening of the
corridor of the O/N interbank money market rate is carried out by adjusting the standing
facilities rate to the BI Rate. This policy is intended to further develop the interbank money
market by encouraging banks to frequently involve in interbank money market in fulfilling
short term liquidity needs prior to engaging monetary instruments provided by Bank
Indonesia. The standing lending facility rate is increased from BI Rate + 50 bps to BI Rate +
100 bps and the standing deposit facility rate is decreased from BI Rate – 50 bps to BI Rate
– 100 bps. Hence, with the current BI Rate of 6.5%, the standing lending facility rate is 7.5%
and the standing deposit facility rate is 5.5%. This policy is effective as of Thursday, 17 June
2010.
3.2. Revisions of regulations on banks’ FX net open positions. The policy is intended to buttress
the deepening of the domestic foreign exchange market while keeping in consideration
bank prudential aspects. The On Balance Sheet NOP limit of maximum 20% of capital is
abolished, however, the Overall NOP is still maintained at 20% of capital. The existing realtime compliance on NOP limit is further relaxed into 30 minutes window time. This policy
is effective as of 1 July 2010.
3.3. Implementation of the minimum one month holding period of Bank Indonesia Certificate
(SBI). This policy requires SBI owners in the primary and secondary market to retain a
minimum one month (28 days) holding period. During that period, the owner of SBI is
prohibited to transfer the SBI ownership either by way of an outright or repo to other
2
party, except repo to Bank Indonesia. This policy is imposed to both resident and nonresident investors and is intended to lengthen the ownership and the transaction period of
SBI in the secondary market. Nevertheless, to fulfill its short term liquidity needs, a bank
holding SBI can conduct repo transaction with Bank Indonesia which has been available
thus far. This policy is effective as of the next monthly SBI auction on 7 July 2010.
3.4. Introduction of the non-securities monetary instrument in the form of “term deposit”.
Term deposit is a liquidity management instrument of Bank Indonesia without an
underlying debt security. This instrument is non-transferable, but can be redeemed prior to
maturity (early redemption) with subject to certain requirements. Banks may use this
instrument for short-term liquidity management in addition to other available instruments
provided by Bank Indonesia such as the FASBI and repo. The term-deposit instrument will
be provided by Bank Indonesia through an auction mechanism with a 1 month tenor,
effectively as of July 7, 2010.
3.5. Issuance of the 9 and 12 month SBI. The issuance will be conducted on a monthly basis
through an auction mechanism and calculation similar to the SBI issuance of other maturity
types. This measure is a continuation of the extension of the maturity profile of the 3 and 6
month SBI which is fully implemented in June. The issuance of the 9 and 12 month SBIs
completes the maturity structure of the SBI to a 1 year period. This policy measure will
supports the deepening of the domestic money market in terms of the availability of
instruments, maturity profile, and the formation of the short term interest rate structure.
The issuance of the 9 month SBI will be effective as of the monthly SBI auction in the
second week of August 2010, while the 12 month SBI on the second week of September
2010.
3.6. Implementation of the triparty repurchase (repo) of Government Debt Securities (SBN).
The triparty repo SBN is Bank Indonesia’s liquidity management activity through reverse
repo transaction with underlying asset in the form of SBN acquired from qualified parties
such as Pension Fund and Insurance. With this measure, the SBN that normally held until
maturity by these institutions can be traded in the secondary market to support domestic
financial market deepening and the enrichment of monetary instruments. To implement
the regulation, Bank Indonesia will cooperate with the Government and other related
institutions in preparing the necessary regulations and mechanism. The policy is expected
to be effective in 2011.
4. Policy Implementation
The various policy measures will be implemented in stages since June 2010 and will be
evaluated from time to time. The early announcement of the policy measures is expected to
provide room to market participants to make necessary adjustments.
3
No.
1
Policy
Implementation
2
Widening of the corridor of overnight (O/N)
interbank money market rate to BI Rate ± 100 17 Juni 2010
bps
Revision of the Net Open Position
1 Juli 2010
3
Minimum One Month Holding Period of SBI
7 Juli 2010
4
Rupiah Term Deposit
7 Juli 2010
5
9 and 12 month SBI
9 month SBI : week II August 2010
12 month SBI: week II Sept 2010
6
Triparty Repo
2011
5. Closing
The above-mentioned policy measures will be further regulated in Bank Indonesia regulations.
Further inquiries can be submitted to :
Monetary Operation Help Desk
email helpdesk_opt@bi.go.id
phone 6221 381-8343, 381-8339, 381-8350, 381-8117, 381-8184
fax 6221 231-1347, 380-1766
website www.bi.go.id
4