Image: Reuters Berita 24 English - An official stated on Monday that the Bank of Indonesia has begun the process of normalising monetary po...
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| Image: Reuters |
Berita 24 English - An official stated on Monday that the Bank of Indonesia has begun the process of normalising monetary policy by selling part of its holdings of government bonds on the secondary market. This comes after the Bank of Indonesia kept liquidity extremely slack during the pandemic.
Bank Indonesia (BI), the central bank of the largest economy in Southeast Asia, is one of the least hawkish central banks in the world. As a result of relatively low core inflation, BI has maintained historically low interest rates.
However, beginning in March and continuing through September, it has began to implement measures that will reduce the amount of liquid assets available in the financial system. These measures take the form of progressive increases in the reserve requirement ratio for banks.
"After raising the reserve requirement ratio... BI has also strengthened rupiah monetary operations via the sale of government bonds in the secondary market," Edi Susianto, head of BI's monetary management department, said in a text message to Reuters. "BI has also strengthened rupiah monetary operations via the sale of government bonds in the secondary market."
He added that this was part of BI's efforts to safeguard the stability of the rupiah currency and that the sale was aimed to improve the supply and demand situations in the money market and the bond market.
According to Edi, BI completed the sale of 390 billion rupiah ($26.03 million) in bonds on Monday and planned to continue selling.
While the Bank of International continues to participate as a standby buyer in government bond auctions as part of the arrangement it reached with fiscal authorities to stabilise bond yields, measures to normalise BI's liquidity are now under progress.
Additionally, in the previous year, it came to an agreement to buy 224 trillion rupiah worth of bonds in 2022 with low interest rates in order to assist the government in managing its interest payments.
According to data provided by the Ministry of Finance, as of July 14, BI held a total of 824.54 trillion rupiah ($55.04 billion) worth of government bonds, excluding those used in monetary operations with banks. This figure represents an increase from the 801.46 trillion rupiah held by the institution at the end of 2021.
The market has been reassured by the governor of the central bank, Perry Warjiyo, that the net impact of BI's operations this year will be a drop in banking liquidity to a level that will not disrupt lending.
Later on this week, BI will be holding a policy meeting that will last for two days. On July 8, Warjiyo was quoted by Reuters as saying that the Bank of Indonesia (BI) may hike interest rates during the current quarter in order to curb the impact of future pressure on core inflation.
($1 = 14,982.0000 rupiah)
