BI announces 23 new policies to strengthen monetary stability
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