BI an­nounces 23 new poli­cies to strengthen mon­e­tary sta­bil­ity

The Pak Banker - - Front Page -

JAKARTA: Bank In­done­sia (BI) an­nounced 23 new poli­cies that are ex­pected to strengthen the nation's mon­e­tary and fi­nan­cial sta­bil­ity, some of which will re­duce for­eign cur­rency liq­uid­ity in the midst of surg­ing cap­i­tal in­flows.

One pol­icy is on in­creas­ing the for­eign cur­rency min­i­mum re­serve re­quire­ment (GWM) and an­other is on the lim­i­ta­tion of short-term for­eign debts, BI Gover­nor Darmin Na­su­tion said Wed­nes­day, con­sid­er­ing them "ex­tremely sig­nif­i­cant in man­ag­ing the in­flows".

"The reg­u­la­tions will limit in­com­ing for­eign funds to the coun­try so that short-term money, which just wants to take prof­its, can be elim­i­nated," he told a press brief­ing at BI of­fices in Jakarta.

As of the end of Jan­uary next year, at the lat­est, banks must limit their short-term for­eign bor­row­ings in for­eign­ers' cur­rent ac­counts (vostro) to 30 per­cent of their cap­i­tal, Darmin ex­plained. "At present, there are banks that have their vostro ac­counts above 100 per­cent and even in the hun­dreds of per­cent of their cap­i­tal."

Banks with a daily cur­rent bal­ance of short-term for­eign debts more than the limit will be given three months to ad­just af­ter the reg­u­la­tion is im­ple­mented. Mean­while, the for­eign cur­rency min­i­mum re­serve re­quire­ment will re­quire banks to store 5 per­cent of their for­eign cur­rency third­party funds at the cen­tral bank as of March 1, 2011, up from 1 per­cent at present.

The pol­icy comes in a phased-in process. In June 1, banks should in­crease their for­eign cur­rency re­serve at the cen­tral bank to 8 per­cent.

Ac­cord­ing to BI Deputy Gover­nor Budi Mulya, the pol­icy will ab­sorb up to US$3 bil­lion of for­eign cur­rency liq­uid­ity in the bank­ing sys­tem in the sec­ond phase, $2 to $2.5 bil­lion of which will be ab­sorbed in the first stage.

"The pol­icy to in­crease the for­eign cur­rency min­i­mum re­serve re­quire­ment from 1 per­cent to 5 per­cent and then 5 per­cent to 8 per­cent could not be sep­a­rated with the 30 per­cent lim­i­ta­tion of banks' short­term for­eign debts. Both aim at mit­i­gat­ing a po­ten­tial sud­den re­ver­sal." -PB News

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