BI moves to ease liquidity

JAKARTA (JP): Bank Indonesia, the central bank, moved yesterday to cut the foreign exchange reserves requirement for commercial banks from 5 percent to 3 percent to add to the dollar supply in the market.

The central bank also decided to reopen its money-market securities (SBPU) facility to inject more cash into the country's hard-pressed economy, while reducing the cost of borrowing by cutting its Bank Indonesia Certificate (SBI) rates by one percentage point.

Speaking at a press conference, Bank Indonesia managing director Paul Soetopo Tjokronegoro noted that the rupiah continued to weaken against the U.S. dollar because the dollar supply in the domestic market was much less than demand.

"Since one of the reasons for the persistent weakening of the rupiah is the limited dollar supply, we decided today to increase the dollar supply in the market by reducing the minimum requirement for foreign exchange to 3 percent from 5 percent," Paul said.

He said the 2 percent difference in commercial banks' foreign exchange reserves deposited in Bank Indonesia accounted for some US$850 million.

"Hopefully, this balance could be supplied to the market that would eventually lessen pressure on the rupiah," he said.

Nevertheless, rupiah reserve requirements for commercial banks should remain the same, at 5 percent of their third party funds denominated in rupiah.

And commercial banks' foreign exchange net open position should also remain at 25 percent of their working capital, Paul said.

Paul added that the central bank would also introduce a pre- shipment rediscount facility for special exporters so that they could sell their future export earnings to get rupiah liquidity.

"We hope the new export promotion facility in the form of a pre-shipment export financing facility will give more room for economic activities and add to the future dollar supply," Paul said.

Besides pre-shipment financing support, Bank Indonesia also has been providing a post-shipment financing facility in the form of a rediscount and swap facility so exporters can sell their dollar earnings in the spot market and buy them back in the future at an agreed rate.

Paul added that the central bank decided to reopen its money market certificate (SBPU) facility, which had been closed since July 24, to inject new liquidity to cash-strapped businesses.

SBPUs are short-term money-market securities used by the central bank to inject liquidity into the market.

But Paul said the reopening of SBPU facilities would be done in phases and controlled so that it would not undermine the rupiah rate.

Paul said the central bank had extended subsidized credit to several state banks and disbursed special SBIs early of their maturity to finance low-cost housing projects.

State-owned Bank Tabungan Negara, for instance, disbursed low- cost housing credit worth Rp 332 billion during the last two months, he added.

Earlier yesterday, the central bank surprised the market with a bold move by cutting its one-day to three-month SBI rates by one percentage point amid weakening regional currencies.

SBIs are short-term rupiah-denominated obligations issued by the central bank to drain excess liquidity from the market.

Following the rate cut, the one-day SBI is now 14 percent, the two to six-day SBI is 15 percent, one-week SBI 16 percent, two- week 18 percent, one-month 20 percent, two-month 19 percent and three-month 18 percent.

The cut was the fifth reduction in SBI rates since the central bank hiked the rates almost three-fold in August in a bid to check the fall of the rupiah. (rid)

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