JP\/13\/BI<\/p>\n
Rupiah gains as central bank steps in to defend the currency<\/p>\n
The Jakarta Post
\nJakarta<\/p>\n
The rupiah bounced back on Tuesday from its recent slide
\nagainst the dollar, following the central bank's latest market
\nintervention and its unveiling of a new arsenal of monetary
\nmeasures to defend the local currency from future volatility.<\/p>\n
The rupiah closed at Rp 9,688 on Tuesday, up from a three-year
\nlow of Rp 9,750 the previous day, after Bank Indonesia (BI)
\nbought up an estimated of US$150 million worth of dollars in the
\nspot market. The government's sale of Rp 3 trillion (some $312
\nmillion) in domestic bonds also helped absorb excess market funds
\nand raise the rupiah.<\/p>\n
The gain -- the largest since January, according to Bloomberg
\n-- also occurred on the back of BI's plans to pass a raft of
\nemergency measures to prevent the rupiah from sliding further
\nagainst the greenback. These measures includes continuing to
\nraise the interest rate on its benchmark SBI promissory notes, as
\nwell as rolling out new debt and currency swap instruments.<\/p>\n
The central bank also slashed commercial banks' net open
\nposition, and will consider raising their reserve requirements at
\nBI as well if necessary.<\/p>\n
BI governor Burhanuddin Abdullah said on Tuesday the central
\nbank would continue raising its SBI interest rate to mop up any
\nexcess liquidity in the market. "There is an open possibility to
\nfurther raise the interest rate by between 15 and 20 basis
\npoints."<\/p>\n
BI raised the SBI interest rate 17 basis points from 7.53
\npercent to 7.7 percent at its last auction. Another auction for
\nthe one-month SBI notes is scheduled for next Wednesday.<\/p>\n
The one-month -- and three-month -- SBI notes are among the
\ncentral bank's money market instruments, in addition to its Bank
\nIndonesia Facility (FASBI), in which commercial banks can park
\ntheir excess funds for a week at a current interest rate of 7.25
\npercent.<\/p>\n
To address the shortcomings of current instruments in
\nabsorbing excess liquidity, however, BI senior deputy governor
\nMiranda Gultom said in an interview with Dow Jones that the
\ncentral bank was also preparing additional monetary measures,
\nconsisting of a new debt instrument and a currency swap mechanism
\nfor commercial banks.<\/p>\n
The central bank began offering on Tuesday its new, three-day
\nFine Tune Kontraksi (FTK) debt instrument, which carries an
\ninterest rate of 3.625 percent, to help absorb excess market
\nliquidity.<\/p>\n
The planned currency swap mechanism -- which allows hedging
\ntransactions -- would help importers to better plan their future
\ndollar needs, therefore relieving pressure on the rupiah.<\/p>\n
Elsewhere, Burhanuddin said that BI would return the level of
\ncommercial banks' net open position of equity capital back to 20
\npercent, after raising it in January to 30 percent in accordance
\nwith the international Basel core banking principles.<\/p>\n
"The level is effective as of today (Tuesday)," he said.<\/p>\n
A tighter net open position is expected to help the rupiah, as
\ncommercial banks will have less room to speculate against the
\nlocal currency using their huge rupiah liquidity.<\/p>\n
"And if there continues to be excess liquidity, then there is
\nalso the possibility of increasing the reserve requirement of the
\nbanks," Burhanuddin added.<\/p>\n
Commercial banks must at present maintain a minimum 5 percent
\nreserve at the central bank. Similar to tightening the net open
\nposition, a higher reserve requirement would leave less room for
\nbanks to use their excess funds for foreign exchange speculation.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/jp13bi-1447899208",
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