BI Prepares Four Additional Steps to Strengthen the Stability of the Rupiah

Bank Indonesia (BI) has revealed that it has prepared four further steps to strengthen the stability of the rupiah exchange rate amid increasing global pressure due to the conflict in the Middle East and turmoil in the international financial market.

Previously, BI decided to raise the benchmark interest rate or BI-Rate by 25 basis points to 5.50 percent.

Governor of BI Perry Warjiyo said that Bank Indonesia has also taken steps to strengthen the stabilization of the rupiah exchange rate by increasing returns and a number of other incentives in monetary operations for the inflow of foreign investment.

He added that the increase in the interest rate structure of the Bank Indonesia Rupiah Securities (SRBI) at all tenors of 6, 9, and 12 months to further increase the yield for the entry of foreign portfolio investment.

"The increase in the SRBI interest rate structure is intended to be carried out according to market mechanisms and to make portfolio investments in Indonesia remain competitive with other countries," he said in a statement, Tuesday, June 9.

In addition, Perry said that incentives in the form of a reduction in the hedging swap rate for foreign investors by 10 percent to further increase the attractiveness of foreign investors and compensate for the obligations that investors have been bearing.

As is known, so far Bank Indonesia has provided hedging swap facilities for the entry of foreign investment through banks in Indonesia which are then passed on to Bank Indonesia.

Meanwhile, he said that the determination of the regular swap rate (regular swap) would continue to be given by Bank Indonesia according to the applicable market mechanism.

Perry said the reopening of the repurchase agreement (repo) instrument auction window for 3, 6, 9, and 12-month tenors for banks to ensure adequate liquidity in the money and banking markets with the goal of keeping the growth of Primary Money (M0) at double digits (above 10 percent).

According to him, the expansion of this repo facility will be the main instrument in managing monetary liquidity compared to other mechanisms, including through the purchase of SBN from the secondary market that has been taken by Bank Indonesia.

He added that the increase in the intensity of monetary operations, both the rupiah and foreign exchange, to strengthen the stabilization of the rupiah exchange rate.

"The strengthening of the Rupiah monetary operation is achieved by opening the SRBI auction twice a week. Meanwhile, the strengthening of foreign exchange monetary operations continues to be carried out by increasing the intensity of interventions both through spot transactions and DNDF in the domestic market as well as NDF transactions in foreign markets," he explained.

Furthermore, BI also continues to strengthen coordination between monetary policy and government fiscal policy to maintain rupiah stability.

According to Perry, the synergy is carried out so that fiscal and monetary policies can run in the same direction, support each other, and strengthen according to their respective authorities.

He explained that the coordination was focused on two main things, namely, increasing the attractiveness of foreign investment portfolios, especially in SRBI and SBN instruments, through competitive yields according to market mechanisms.

Next, maintain the adequacy of liquidity in the money and banking markets by managing government cash to remain at Bank Indonesia so that monetary and fiscal operations support the stability of the rupiah exchange rate.

Perry said that fiscal and monetary coordination, which has been running strong, will continue to be strengthened consistently and sustainably to maintain national macroeconomic stability.

In addition, he is optimistic that the synergy of these policies can also support economic growth, with the belief that Indonesia's economic fundamentals remain solid and have strong resilience in the face of global uncertainty.