In­done­sia cbank moves to mop up ex­cess liq­uid­ity

The Pak Banker - - Company& -

JAKARTA: In­done­sia's cen­tral bank moved on Wed­nes­day to mop up ex­ces­sive liq­uid­ity and en­cour­age more lend­ing, an­nounc­ing fresh mea­sures that sought also to pro­tect South­east Asia's biggest econ­omy against new in­fla­tion­ary pres­sures.

Bank In­done­sia said the min­i­mum dol­lar re­serve re­quire­ment for com­mer­cial banks would be raised to 5 per­cent of to­tal de­posits from March 1 and to 8 per­cent on June 1, from the cur­rent 1 per­cent. A rise to 5 per­cent in dol­lar re­serve re­quire­ment -which banks store at the cen­tral bank --was ex­pected to ab­sorb $1.5-2.5 bil­lion from the mar­ket, while the rise to 8 per­cent could ab­sorb $3 bil­lion, deputy bank gover­nor Budi Mulya told a news con­fer­ence. In­done­sian of­fi­cials have tried chan­nel­ing strong cap­i­tal flows into the coun­try to­wards longer-dated in­vest- ments for fear a change in risk sen­ti­ment may trig­ger a "hot money" re­ver­sal, hurt­ing the lo­cal cur­rency and fi­nan­cial sta­bil­ity. In­done­sia has been a dar­ling of emerg­ing mar­ket in­vestors this year. The cur­rency has risen nearly 3.5 per­cent and the stock mar­ket 40 per­cent --driven by strong do­mes­tic con­sump­tion.

For­eign­ers have so far this year bought net 86.8 tril­lion ru­piah ($9.6 bil­lion) worth of In­done­sian govern­ment bonds and 9.7 tril­lion ru­piah of cen­tral bank SBI debt, lat­est Bank In­done­sia data shows.

But In­done­sia joins coun­tries from South Korea to Brazil that have im­ple­mented stricter mea­sures to pro­tect their economies from a tide of cap­i­tal, al­though Jakarta's steps have been more mod­est.

"The con­cern could stem from the fact that most for­eign in­vestors buy­ing lo­cal as­sets ex­change their dol­lar liq­uid­ity for ru­piah via lo­cal com­mer­cial banks, which could lead to an alarm­ing sit­u­a­tion and cre­ate ru­piah in­sta­bil­ity should there be a sud­den and mas­sive un­wind­ing," En­rico Tanuwid­jaja, an econ­o­mist at OSK-DMG in Singapore, said of the new mea­sures.

"I think Bank In­done­sia is try­ing to en­sure that lo­cal banks em­ploy closer mon­i­tor­ing of their U.S. dol­lar bank­ing books." The cen­tral bank on Wed­nes­day also capped banks' vostro ac­counts at a max­i­mum 30 per­cent of cap­i­tal be­gin­ning end Jan­uary, with a three­month tran­si­tion time. Vostro ac­counts are ru­piah de­posits in com­mer­cial banks held by for­eign­ers and con­sid­ered a form of short-term bor­row­ing by the in­sti­tu­tion. In­fla­tion, the Achilles heel of South­east Asia's largest econ­omy, may yet pre­vent growth from reach­ing 6-6.5 per­cent as ex­pected next year. -PB News

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.