Bank Indonesia may unveil further measures to ease volatility in the rupiah and may announce next week new rules on bank ownership, a central bank official said.
“In the region, we still suffer from the turbulence from the European countries,” Edi Setiadi, an executive director of the Shariah banking department at Bank Indonesia, told reporters in Singapore today. “We are busy with how to act on the currency turbulence” and Governor Darmin Nasution may announce measures “to make the market calm,” Setiadi said.
Bank Indonesia said last week it will start offering dollar term deposits to boost supply of the currency locally and stabilize the rupiah, the biggest decliner in Asia this year after the rupee. Southeast Asia’s largest economy joined India in moving to steady its exchange rate as the escalating European crisis spurs outflows from emerging markets.
“If we look at what is happening to the Indonesian market right now, Bank Indonesia should issue rules on repurchase agreements or reverse repos” to enable banks who have global bonds and need dollars to tap central bank funds, said Destry Damayanti, an economist at PT Bank Mandiri PT Bank Mandiri in Jakarta. “This will help to stabilize the rupiah.”
The government can also coordinate with Bank Indonesia to offer dollar-denominated government bonds to the domestic market, Damayanti said.
The rupiah declined today after overseas investors cut holdings of the country’s stocks. It weakened 0.4 percent to 9,438 per dollar as of 3:45 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. The currency is the second-worst performer against the dollar this year among 11 Asian currencies tracked by Bloomberg.
“We’ve announced last week the dollar term deposit, that’s our measures to ease rupiah” volatility, Bank Indonesia Deputy Governor Halim Alamsyah said in a mobile-phone text message today when asked about plans for new currency measures. He declined to comment on additional steps the central bank may be considering.
The central bank is due to release its monthly monetary policy decision on June 12. It said last month it would take steps to reduce excess funds in the economy while extending a pause in interest-rate cuts as a declining currency and the threat of higher fuel prices push up inflation risks. Governor Nasution cut the reference rate to 5.75 percent in February, the third reduction since early October.
The sale of dollar term deposits is part of efforts to deepen Indonesia’s financial market, Nasution said last week. The measure will provide an avenue for local lenders to bring back an estimated $2 billion a day on average that is currently being kept in overseas banks, Alamsyah has said.
The move will “complement” foreign-exchange reserves and make it easier for the central bank to enter the market, Bank Indonesia also said.
India’s central bank has also stepped up the fight to steady the rupee. It curbed trading in currency derivatives to rein in volatility and moved to boost the supply of dollars by cutting the amount of overseas income companies can hold in foreign currency to 50 percent from 100 percent.
Separately, Indonesia may announce a new regulation in relation to bank ownership “this week, or early next week,” Setiadi said today.
The country is studying a proposal to allow banks to own more than 40 percent of local banks provided investors meet criteria set by the central bank, which may include good corporate governance, Alamsyah said May 31. The proposal includes capping ownership of families or individuals in banks at 20 percent and that of companies that aren’t financial institutions at 30 percent, he said. Non-bank financial institutions may own up to 40 percent of banks, he said.
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