Bank Indonesia Creates New Unit to Help Deepen Financial Markets

  • Central bank wants derivatives to be 50% of FX trades by 2024
  • New department will collaborate with Finance Ministry and OJK

Indonesia’s central bank created a new department to help develop financial markets in an effort to make the economy more resilient to sudden capital outflows, an official said.

Nanang Hendarsah, who was head assistant in the office of Governor Agus Martowardojo, will lead the unit as executive director, he said by mobile-phone text message on Tuesday.

“We want Indonesia’s market development to be on par with peer countries,” he said. “The aim is to accelerate a number of market-deepening initiatives so that Indonesia’s financial market can be more sustainable and resilient against any shocks.”

While Indonesia has Southeast Asia’s largest economy, daily currency transactions averaged only $5 billion in 2013, compared with $13 billion in Thailand and $11 billion in Malaysia, according to latest data from the Bank for International Settlements. Bank Indonesia is now seeking to expand that market.

Hendarsah said the bank aims to increase the proportion of foreign-exchange derivatives to 50 percent of trades by 2024 from 40 percent in April and less than 30 percent last year.

Credibility ‘Improving’

The new department will collaborate with authorities including the Finance Ministry and Financial Services Authority, or OJK, to address “cross-cutting” policies regulating currency, capital and money markets, he said. The department’s first task will be to coordinate a forum to help the government find ways to fund infrastructure through bond sales, he said.

The central bank overhauled its monetary policy framework in April by setting a seven-day reverse repo rate as its benchmark to better influence money-market rates.

“The credibility of the central bank is improving,” Kyran Curry, director of sovereign ratings at S&P Global Ratings, said in an interview from Melbourne on Monday. “It continues to establish a longer track record in operational independence, in managing inflation and deepening financial markets.”

Hendarsah previously led a similar task force at the central bank, where he helped improve liquidity by ending a policy in which officials would call traders to reprimand them for selling the rupiah at levels deemed too weak.

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