Forex deposit ceiling set at 2%

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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