Key facts
- Bank Indonesia aims to harmonize policy rates with monetary operations.
- The deposit facility rate was raised to restore a symmetrical interest-rate corridor.
- Reserve requirement ratio cuts are planned to be cumulative 200 basis points by December.
- An estimated 90 trillion rupiah ($4.98 billion) increase in liquidity is expected.
- Outstanding SRBI has been reduced from 1,096 trillion rupiah to below 950 trillion rupiah.
Bank Indonesia on Friday defended its recent policy package, which included holding the benchmark interest rate, raising the overnight deposit facility rate, cutting banks' reserve requirement ratio (RRR), and offering more FX hedging discounts. The central bank stated these measures are intended to harmonize policy rates with monetary operations and improve liquidity flow to the economy.
Firman Mochtar, BI's head of economic and monetary policy, explained that the higher deposit facility rate restores a symmetrical interest-rate corridor, bringing both deposit and lending facility rates to 75 basis points from the benchmark rate. He noted that previous wider gaps were due to government fund placements in commercial banks, some of which have been withdrawn.
The central bank plans to cut reserve requirements by a cumulative 200 basis points by December, with changes to its liquidity incentive scheme leading to an effective reserve ratio of about 2%. This is expected to increase liquidity by approximately 90 trillion rupiah ($4.98 billion).
Erwin Gunawan Hutapea, BI's head of monetary management, added that the central bank wants banks to favor shorter-dated instruments over parking excess funds in its rupiah securities (SRBI). Outstanding SRBI has been reduced from 1,096 trillion rupiah in July to below 950 trillion rupiah currently.