BI ISSUEs Two New Policies To Strengthen Liquidity And Transmission Of Interest Rates

Governor of Bank Indonesia (BI) Perry Warjiyo. (Photo: Doc. Antara)

JAKARTA - Bank Indonesia (BI) announced two new policies aimed at strengthening liquidity in the financial market and accelerating transmission of the benchmark interest rate reduction.

Bank Indonesia Governor Perry Warjiyo explained that the first policy regarding the expansion of the underlying repo in BI's monetary operations policy, as well as the issuance of a new instrument called the BI Floating Rate Note (FRN) which is supported by the development of money market instruments, namely the Overnight Index Swap (OIS).

Regarding the expansion of the underlying repo, Perry stated that the step was carried out through the purchase of high-quality securities issued by the property financial services institution or formed by the government.

"This is to support the government's program for the welfare of the community," he said at a press conference, Wednesday, October 22.

Meanwhile, he conveyed that the issuance of BI FRN and the development of OIS was intended to form a interest rate structure that reflected real transactions in the money market, especially for the tenor above overnight.

Perry stressed that the two policies were a strengthening of previous policies, designed to deepen financial markets, increase liquidity, and accelerate the transmission of the reduction in the benchmark interest rate, which is currently at a low level.

He added several steps that have been taken previously, including strengthening a pro-market monetary operations strategy to increase the effectiveness of interest rate transmission, as well as managing interest rate structures through monetary instruments and foreign exchange that are in line with easing liquidity.

"And this is to accelerate the effectiveness of lowering deposit rates and bank credit," he said.

In addition, he said BI also continues to encourage increased liquidity through reducing the issuance of BI Rupiah Securities and the measurable purchase of Government Securities (SBN) in the secondary market.

Then, BI also expands the reach of investors for the Sukuk Valas Bank Indonesia (SUVBI) instrument, so that it can be owned by banks, non-bank agencies, and even foreign parties.

In addition, he conveyed that the role of the main dealer was also strengthened to support the increase in SRBI transactions in the secondary market as well as repo transactions between market players.