BI to use repos as monetary tool

BI to use repos as monetary tool

Dow Jones, Jakarta

Bank Indonesia Governor Burhanuddin Abdullah said on Friday that the central bank will soon use government bond repurchase agreements (repos) as one of its open market operation tools.

He also reiterated that the central bank is keeping a tightening bias on monetary policy amid mounting inflationary pressures.

"The new instrument will add to the number of monetary tools that we can use to stabilize the money market," Burhanuddin told reporters.

He said the central bank will first sign an agreement with primary bond dealers before using bond repos as its latest monetary tool.

Burhanuddin added that he hopes the agreement can be signed next month.

Currently, Bank Indonesia uses one- and three-month SBI promissory notes, and one- and seven-day deposits, known as FASBI, as its main tools to control money supply.

Burhanuddin also said the central bank maintains a tightening bias on monetary policy amid rising inflationary pressures.

However, he declined to comment on when the central bank would raise interest rates.

"The only thing that I can say is that interest rates will rise if inflationary pressures continue to rise," he added.

The weighted rate of its one-month SBI notes is currently at 7.37 percent. Analysts expect it will slowly rise to 8 percent by the end of the year.

Bank Indonesia has been reluctant to raise interest rates on concerns that doing so would curb economic growth.

The government expects the economy to grow 4.8 percent this year, picking up from 4.1 percent last year. Such a growth rate, however, is among the lowest projected in the region and isn't enough to stop unemployment from rising.