BI assures 2% reserve requirement cut will not trigger excessive liquidity

Jakarta (ANTARA) – Bank Indonesia (BI) has assured that an average 2 percentage-point reduction in the statutory reserve requirement (GWM) will not trigger excessive liquidity in the market, as the measure is calibrated to balance banking liquidity, BI Head of Monetary Economic Policy Department Firman Mochtar said in Jakarta on Friday.

The policy is also accompanied by an adjustment to the deposit facility rate (DF rate) to strengthen monetary policy transmission.

“Will this [reserve requirement cut] lead to excessive liquidity? Our calculations say no. We always calculate how much money should be circulating in the community. That amount is determined based on keeping inflation within its range and ensuring gross domestic product (GDP) is consistent with inflation. This is how we put together the reserve requirement strategy,” Firman said.

BI said the reserve requirement reduction and the increase in the deposit facility rate are intended to harmonise and synchronise its monetary operations policy.

The central bank stressed that the reduction would be measured, keeping liquidity balanced with the BI Rate, while ensuring inflation remains within its target and economic growth is supported.

Firman said liquidity needed to be rebalanced amid strong credit growth and the government’s strategy of placing funds in banks.

The measure is intended to keep liquidity conditions aligned with the monetary policy stance reflected in the BI Rate, allowing monetary policy to be transmitted more effectively.