BI's new plan seen as temporary fix<\/p>\n
The Jakarta Post, Jakarta<\/p>\n
Bank Indonesia's plan to halt rupiah speculation in the banking
\nsector should be helpful in curbing the depreciation of the
\nembattled rupiah, analysts said, but only temporarily as the
\npolicy did not address the root of the problem -- huge liquidity
\nin the banking sector.<\/p>\n
With no concrete efforts being made to force the banking
\nsector to extend loans to the corporate sector (a move that would
\nreduce excess liquidity in the banking sector), the new Bank
\nIndonesia plan would not solve the real problems, which would
\ntherefore reoccur in the future, said Aviliani of the Institute
\nfor the Development of Economics and Finance (Indef).<\/p>\n
\"The move will definitely help, but for how long? This sort of
\nsituation (excess liquidity) will continue forever unless
\nattempts are made to deal with the huge amount of excess funds in
\nthe banks, which is basically the root of the problem,\" she said.<\/p>\n
\"What we need is an integrated attempt to push the banks to
\nlend more to the private sector. If this happens, we will no
\nlonger need to worry about excess liquidity being used for
\nspeculation against the rupiah.\"<\/p>\n
With the banking sector still reluctant to significantly
\nincrease its loan exposure to the private sector, Bank Indonesia
\nsays that the country's banks at the moment are awash in excess
\nfunds. While a significant part of these funds are invested in
\nthe central bank's promissory notes (SBI), some has reportedly
\nbeen used for speculative dollar purchases.<\/p>\n
To deal with this, Bank Indonesia announced plans to absorb
\nfunds from the market to help prevent the ailing rupiah from
\nfalling further. The national unit is currently hovering at more
\nthan a 2-year low.<\/p>\n
New measures will be introduced in the next two weeks,
\nincluding raising the minimum reserve requirements of banks and
\nbroadening investment alternatives by enlarging the range of
\nfinancial instruments -- including selling new bills.<\/p>\n
Central bank governor Burhanuddin Abdullah expects that
\nall these efforts will be capable of absorbing part of around Rp
\n40 trillion in excess liquidity.<\/p>\n
It is hoped that the planned actions, coupled with other
\nmeasures already in place including market intervention, will
\nstabilize the battered local unit at around 9,000 per dollar.<\/p>\n
The rupiah has so far lost about 11 percent since the start of
\nthe year, making it the region's worst performing currency.<\/p>\n
However, Anton Gunawan, a Citigroup economist, doubted the
\nmoves would be effective in defending the rupiah, which he said
\nwould continue on a roller-coaster course for at least a month as
\nsentiment would remain in favor of the dollar.<\/p>\n
\"In the next month, I think the rupiah will likely remain
\nunder pressure as negative sentiment is still prevailing here,
\nmostly as a result of uncertainties regarding the U.S.
\nauthorities' plans for an interest rate hike.<\/p>\n
\"There will also be domestic uncertainty, as well, at least
\nuntil after the presidential election,\" Anton said, adding that
\nthe local unit would bounce back after that to around 9,000
\ntoward the year-end.<\/p>\n
Polling day for presidential election is July 5, with a
\npossibly second round on Sept. 20.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bis-new-plan-seen-as-temporary-fix-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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