Monetary Policy Bank Indonesia: Easing the Minimum Statutory Reserves
Following the announcement last year, the central bank of Indonesia (Bank Indonesia) has again stated that it is to ease the minimum statutory reserves (in Indonesian: giro wajib minimum) regulations for conventional local banks (both for rupiah and foreign-denominated currencies). With this looser approach, banks can manage their liquidity more effectively, which should lead to reduced volatility on the overnight money market ("interest rate buffer").
Based on the new regulation Bank Indonesia requires these banks to keep a minimum of 5.0 percent of their total deposits at the central bank, down from the 6.5 percent requirement in the preceding regulation.
This means there should be less need for banks to resort to the overnight money market to meet the daily reserve requirements and thus a less volatile market. Meanwhile, a bank with plenty of third-party funds can now invest more in better-yielding instruments rather than needing to park these funds at Bank Indonesia.
Besides making it easier for banks to manage their liquidity more effectively and reducing volatility on the overnight money market ("interest rate buffer"), the new regulation is also aimed at deepening the financial markets of Indonesia.
Per 1 July 2017 (but with a one-month transition period) the new regulations come into effect.
