Forex deposit ceiling set at 2%

JAKARTA (JP): Bank Indonesia (BI) has limited the growth of bank foreign exchange deposits and foreign exchange non-trade and trade-related liabilities to a maximum of 2 percent a month, the central bank announced yesterday.

Central bank governor J. Soedradjad Djiwandono said the ceiling for the growth of foreign exchange deposits and liabilities, including letters of credit, should not exceed 25 percent per annum.

"The measure was agreed to by local banks when we started the program to restore the banking sector," he said.

He said he expected the new limits would force banks to be more cautious in their operations.

Banks should not have their foreign exchange deposits too high, as it would harm their liquidity, he said.

Soedradjad briefed the media yesterday on the latest banking measure stemming from the country's stringent economic reforms being implemented to support the US$43 billion bailout program organized by the International Monetary Fund.

Soedradjad said the new measure, announced Sunday, had triggered rumors that Indonesia would abandon its free foreign exchange regime.

"We are not here to correct our earlier statement, but to further explain to people because there have been many rumors contradicting our intentions," he said. "I hope this one will not be misinterpreted."

Despite a series of measures taken by the government to cope with the currency turmoil, the market has so far remained skeptical, resulting in the ongoing weakness of the rupiah.

The central bank governor said yesterday BI also set a ceiling on the interest rates local banks could establish to prevent insolvent and ailing banks from offering high interest rates to lure customers.

For deposits in rupiah, banks could not offer interest rates higher than 0.25 percent above the Jakarta Inter Bank Offered Rates (JIBOR), the average interest rate of the country's 20 largest banks, he said.

Foreign exchange-denominated liabilities could not exceed 0.50 percent above the Singapore Inter Bank Offered Rates (SIBOR), he said.

Soedradjad said interbank interest rates had been relatively lower since the government announced massive banking reforms last Wednesday, which include a guarantee to bank depositors and debtors.

He said the morning interbank interest rate was at 330 percent annually last Tuesday, but it fell to 85 percent yesterday.

He said overnight interest rates also fell to 250 percent yesterday from 325 percent last Tuesday, two days before the widely celebrated Islamic Idul Fitri holiday over the weekend.

The central bank's managing director of commercial bank supervision, Syahrizal Sobirin, said yesterday the package to restore the banking sector announced last Wednesday had managed to herd public funds back to local banks.

"In the last few weeks prior to the package announcement, the flow of money out of the banks was much higher than the inflows," Syahrizal said.

Between December and January, after the government closed 16 insolvent private banks, the amount of money circulated outside of the banks was about Rp 10 trillion more than normal, he said. He did not say how much the amount was normally.

"But today the inflow of money from customers to the banks was higher than the outflow," he said. (das)

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