BI Offers Incentives for LCT Users to Diversify Forex Transactions

Bank Indonesia (BI) is providing incentives for businesses that utilise the local currency transaction (LCT) scheme through adjustments to hedging instrument premiums, aiming to encourage the diversification of foreign exchange (forex) transactions and deepen the domestic forex market. The incentives include a 10 per cent increase in the buy swap hedging premium (sell swap hedging to BI) and a 10 per cent reduction in the domestic non-deliverable forward (DNDF) sell hedging premium. “This not only increases local currency transactions but also provides benefits for deepening the domestic forex market,” said BI Governor Perry Warjiyo during an online press conference for the BI Board of Governors Meeting in Jakarta on Wednesday. BI has implemented LCT cooperation with six partner countries, namely Malaysia, Thailand, China, Japan, South Korea, and the United Arab Emirates. In line with the expanding use of LCT, BI is also broadening foreign exchange monetary operation instruments with spot and swap instruments in offshore Chinese Renminbi (CNH) against the rupiah. Furthermore, BI Deputy Governor Thomas Djiwandono added that the central bank is preparing the implementation of LCT using the renminbi (RMB). In this regard, BI and the People’s Bank of China (PBOC) have agreed to establish an RMB Clearing Bank in Indonesia.