FAQsPolicy Package on Strengthening Monetary Manag
FREQUENTLY ASKED QUESTIONS (FAQs)
Policy Package on Strengthening Monetary Management and Financial Market Development
1. What is the background and objectives of the policy package?
Bank Indonesia Board of Governor decided on a policy package to strengthen the effectiveness of the
management of monetary policy and the development of the domestic financial market to support
monetary and financial system stability. This policy direction is to respond to the financial market
dynamics stemming from both domestic and global. Board of Governor sees that further development
of the domestic financial market is needed to effectively channel excess liquidity to finance the real
sector and hence to strengthen the management of monetary policy. Meanwhile, the influx of capital
inflows, in particular in the form of portfolio investment, must be vigilantly manage to ensure its benefit
to the stability of the rupiah exchange rate, the accessibility of medium to long term domestic financing,
and the less short term fluctuation of the capital flows. In general, the policy measure is aimed to
enhance the effectiveness of monetary policy transmission, strengthen the financial system stability,
and bolster financial market deepening. This will 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 consistent with the free foreign exchange system
adopted by Indonesia thus far.
2. What type of measures that are being pursued?
i. Widening of the overnight interbank money market rate corridor, effective by 17-06-2010;
ii. Revisions of regulations on banks’ FX net open positions (NOP), effective by 01-07-2010;
iii. Imposing minimum 1 month holding period for Bank Indonesia certificates (SBI) both in primary and
secondary markets, effective by 07-07-2010;
iv. Introduction of term deposits as non-securities monetary instrument, effective by 07-07-2010;
v. Issuance of the 9 and 12 month SBI, effective by 2nd week of August 2010 (9-month SBI) and 2nd
week of September 2010 (12-month SBI); and
vi. Implementation of the triparty repurchase (repo) of Government debt securities (SBN) in 2011.
3. How the “widening of the overnight interbank money market rate corridor” measure works?
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 initiated to further develop the interbank money
market to encourage the use of interbank transactions in fulfilling banks’ 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.
4. What is the objective and mechanics of “revisions of regulations on banks’ FX net open
positions (NOP)”?
The policy is intended to increase the number of transactions and the depth of the domestic foreign
exchange market to support the rupiah exchange rate stability 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 real-time compliance on NOP limit is
further relaxed into 30 minutes window time. This policy is effective as of 1 July 2010.
5. How do ”minimum 1 month holding period for Bank Indonesia certificates (SBI)” measure
works?
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 restricted to transfer the SBI ownership
either by way of an outright or repo to other party, except repo to Bank Indonesia. This policy is
imposed to both resident and non-resident investors and is intended to lengthen the ownership and the
transaction period of SBI in the secondary market. This will support the deepening of domestic money
market and the effectiveness of the monetary management. Nevertheless, to meet 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.
6. What is the meaning of ” term deposits as non-securities monetary instrument”?
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)
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.
7. Why and how Bank Indonesia issue “9 and 12 month SBI”?
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 9 and 12 month SBI will be conducted on a monthly basis
through an auction mechanism and calculation similar to the SBI issuance of other maturity types. This
issuance will completes the maturity structure of the SBI to a 1 year period. This policy measure
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.
8. What do Bank Indonesia means by ”triparty repurchase (repo) Government 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 previously 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.
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
Policy Package on Strengthening Monetary Management and Financial Market Development
1. What is the background and objectives of the policy package?
Bank Indonesia Board of Governor decided on a policy package to strengthen the effectiveness of the
management of monetary policy and the development of the domestic financial market to support
monetary and financial system stability. This policy direction is to respond to the financial market
dynamics stemming from both domestic and global. Board of Governor sees that further development
of the domestic financial market is needed to effectively channel excess liquidity to finance the real
sector and hence to strengthen the management of monetary policy. Meanwhile, the influx of capital
inflows, in particular in the form of portfolio investment, must be vigilantly manage to ensure its benefit
to the stability of the rupiah exchange rate, the accessibility of medium to long term domestic financing,
and the less short term fluctuation of the capital flows. In general, the policy measure is aimed to
enhance the effectiveness of monetary policy transmission, strengthen the financial system stability,
and bolster financial market deepening. This will 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 consistent with the free foreign exchange system
adopted by Indonesia thus far.
2. What type of measures that are being pursued?
i. Widening of the overnight interbank money market rate corridor, effective by 17-06-2010;
ii. Revisions of regulations on banks’ FX net open positions (NOP), effective by 01-07-2010;
iii. Imposing minimum 1 month holding period for Bank Indonesia certificates (SBI) both in primary and
secondary markets, effective by 07-07-2010;
iv. Introduction of term deposits as non-securities monetary instrument, effective by 07-07-2010;
v. Issuance of the 9 and 12 month SBI, effective by 2nd week of August 2010 (9-month SBI) and 2nd
week of September 2010 (12-month SBI); and
vi. Implementation of the triparty repurchase (repo) of Government debt securities (SBN) in 2011.
3. How the “widening of the overnight interbank money market rate corridor” measure works?
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 initiated to further develop the interbank money
market to encourage the use of interbank transactions in fulfilling banks’ 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.
4. What is the objective and mechanics of “revisions of regulations on banks’ FX net open
positions (NOP)”?
The policy is intended to increase the number of transactions and the depth of the domestic foreign
exchange market to support the rupiah exchange rate stability 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 real-time compliance on NOP limit is
further relaxed into 30 minutes window time. This policy is effective as of 1 July 2010.
5. How do ”minimum 1 month holding period for Bank Indonesia certificates (SBI)” measure
works?
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 restricted to transfer the SBI ownership
either by way of an outright or repo to other party, except repo to Bank Indonesia. This policy is
imposed to both resident and non-resident investors and is intended to lengthen the ownership and the
transaction period of SBI in the secondary market. This will support the deepening of domestic money
market and the effectiveness of the monetary management. Nevertheless, to meet 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.
6. What is the meaning of ” term deposits as non-securities monetary instrument”?
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)
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.
7. Why and how Bank Indonesia issue “9 and 12 month SBI”?
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 9 and 12 month SBI will be conducted on a monthly basis
through an auction mechanism and calculation similar to the SBI issuance of other maturity types. This
issuance will completes the maturity structure of the SBI to a 1 year period. This policy measure
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.
8. What do Bank Indonesia means by ”triparty repurchase (repo) Government 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 previously 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.
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