Central bank begins SBI auction today<\/p>\n
JAKARTA (JP): Bank Indonesia plans to start the weekly auction
\nof one-month promissory notes (SBIs) today and expand it to a
\nfull range of maturities as agreed with the International
\nMonetary Fund.<\/p>\n
Currency dealers and analysts said the move would be the
\ncentral bank's first step in allowing interest rates to be fully
\ndetermined by the market.<\/p>\n
\"The auction will eventually lead to real market rates, which
\nshould be lower than the current level,\" a chief dealer with a
\nlocal private bank said.<\/p>\n
He said banks with excess liquidity would not be able to place
\nall their funds in SBIs through the auction. These banks would
\nstart offering lower rates to depositors.<\/p>\n
In this time of crisis, when lending to corporations is
\nnonexistent, sound banks would continue to offer rates lower than
\nSBI rates.<\/p>\n
Under the new system, the central bank will announce its
\nauction target every Tuesday. Those who want to participate in
\nthe auction must place their offers on the next day for
\nsettlement the day after that.<\/p>\n
Dealers said yesterday Bank Indonesia was offering Rp 13
\ntrillion (US$955 million) in one-month SBIs for today's auction.
\nBanks wanting to participate in the auction have to place their
\noffers today from 8.00 a.m. to 2:00 p.m. Jakarta time.<\/p>\n
Unlike the previous system, in which only 21 primary dealers
\ncould participate, all banks are now allowed to participate for
\ntheir own or third-party interests provided they still maintain a
\npositive balance at the central bank.<\/p>\n
Bank Indonesia director Miranda S. Goeltom said yesterday that
\nto enhance the attractiveness of the SBI auction, the central
\nbank offered a window facility for banks participating in the
\nauction in the form of an SBI repurchase system.<\/p>\n
\"Banks could suddenly face liquidity problems due to
\nunexpected internal or external factors. If that happens, there
\nmust be a window for them to get liquidity, especially if they
\ncannot get it from the interbank bank.<\/p>\n
\"If we don't' (give this window facility), interest in the
\nauction of one-month SBIs could be less than satisfactory,\"
\nMiranda told TVRI last night.<\/p>\n
In addition to the SBI auction, bankers said, Bank Indonesia
\nwas maintaining intervention measures in the money market if the
\nauction failed to absorb the targeted amount.<\/p>\n
They said the central bank could step into the money market
\nbetween 8 a.m. and 4 p.m. by selling treasury bills to drain
\nexcess liquidity based on prevailing interbank rates to meet its
\nmonetary target on the same day of settlement for all
\ntransactions.<\/p>\n
While the regular auction would operate on longer-term
\ntargets, the intervention policy would adjust its short-term
\ngoals.<\/p>\n
Local financial market analyst Iskandar Rusnawie predicted
\nthat today's auction would result in interest rates lower than
\nthe benchmark one-month SBI rate of 58 percent.<\/p>\n
\"I suspect we have masses of excess rupiah liquidity in the
\nmarket. And through the SBI auction, BI will drain those excess
\nliquidity without giving interest incentives as even without such
\nincentives, those who have money will still buy SBIs due to their
\nzero risk,\" Iskandar said.<\/p>\n
He predicted that BI would even intervene in the money market
\nwith lower rates.<\/p>\n
Some currency analysts warned, however, that the auctioning of
\nSBIs, which would result in lower rates, would increase pressures
\non the beleaguered rupiah.<\/p>\n
Iskandar, however, disagreed and said that the rupiah would
\ninstead strengthen in line with the central bank's move to absorb
\nexcess liquidity of up to one-month maturity.<\/p>\n
A local bank dealer supported Iskandar's argument and said
\nthat the rupiah was currently undervalued due to concerns about
\nsocial security and political uncertainty.<\/p>\n
\"I think 50 percent of rupiah's weaknesses is caused by these
\nsocial and political concerns. Once these concerns are resolved,
\nthe rupiah will strengthen to a more realistic level,\" he said.<\/p>\n
The rupiah closed at 13,500 against the U.S. dollar in the
\nJakarta spot market yesterday, compared to 2,450 in early July
\nlast year. (rid)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/central-bank-begins-sbi-auction-today-1447893297",
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