Indonesia's central bank has changed the auction mechanism of several monetary instruments and offered longer tenures as part of measures to support the shaky rupiah.
Effective Wednesday, Bank Indonesia changed its auction mechanism for reverse repurchase (reverse repo) of government bonds and issuance of BI certificates to offer a fixed rate instead of a variable rate, Doddy Zulverdi, executive director of monetary management, said on Thursday.
BI also offered several longer tenure instruments like 3-month reverse repo for banks, Zulverdi said, and will issue more of its 9-month and 12-month certificates, which are available for investors as well as banks.
The change is aimed at absorbing banks' excess short-term liquidity to prevent its use to speculate against the rupiah .
"Banks' liquidity condition is ample right now. We have to manage this to avoid spill-over to the foreign exchange market, which could make the rupiah depreciate even more," said Zulverdi.
As of Aug. 19, he said, 42 percent of the 225 trillion rupiah ($16.22 billion) of banks' money at BI was in overnight instruments. BI wants to lower the ratio so such instruments no longer dominate banks' interests.
Juda Agung, executive director of monetary and economic policy, hopes the new pricing scheme for BI certificates will attract foreign investors, bringing needed inflows to finance Indonesia's current account deficit.
On Tuesday, BI kept its benchmark policy rate at 7.50 percent saying its policy focus remains the rupiah's stability.
The rupiah has dropped 10 percent against the dollar this year to 17-year lows and is Southeast Asia's worst performing currency after Malaysia's ringgit.
Banks welcomed BI's move as creating choices.
"To maximise return, there is a lot of shift to the short term now," said Brankoe Windoe, head of treasury at Bank Central Asia. "This is giving banks some alternative, which is good for our liquidity management."
BI has also changed foreign exchange term-deposit auction mechanism to a fixed rate and added a 3-month tenure to attract back Indonesian money offshore.
Trying to manage dollar demand, the central bank has lowered the frequency of its foreign exchange swaps to once a week instead of twice.
It will also soon issue a regulation banning over-the-counter purchase of more than $25,000 without underlying documents, smaller than the previous $100,000 threshold.
"For stability, we will not give up. Our focus is to make the exchange rate less vulnerable and to not add to expectations of further depreciation," BI's Agung said.
original source: http://www.reuters.com/article/2015/08/20/indonesia-bonds-idUSL3N10V30H20150820