JAKARTA: Bank Indonesia also decided to accelerate the implementation of average minimum reserve requirement ratios in an attempt to increase the effective transmission of monetary policy, support banks’ liquidity management flexibility, while simultaneously accelerating financial market deepening in Southeast Asia’s largest economy.
Indonesia-based conventional commercial banks are still obliged to keep 6.5 percent of their deposits, in rupiah currency, at the central bank (known as the minimum reserve requirement) over a two-week period. However, on a daily basis the average minimum reserve requirement’s portion is loosened to 4.5 percent (from 5 percent previously) of their deposits, implying a higher degree of flexibility for banks. Meanwhile, the minimum reserve requirement for conventional banks’ foreign deposits was loosened to a daily minimum of 6 percent, but there two-week average still needs to be at least 8 percent of (foreign) deposits. Lastly, for commercial sharia banks and sharia business units (which comply with Islamic principles), of which the total minimum reserve requirement is 5 percent of deposits over a two-week period, the central bank introduced an average daily reserve requirement of 2 percent of deposits. Bank Indonesia also implemented two other regulations in an effort to encourage banks’ liquidity management. Firstly, it converted the loan-to-funding ratio (LFR) policy for conventional commercial banks and the financing-to-deposit ratio (FDR) policy for sharia commercial banks as well as sharia business units into the macro-prudential intermediation ratio (MIR) within the target range of 80-92 percent, while also broadening credit/financing components which incorporates deposit components by including bank-purchased securities and broadening deposit components by including securities published by sharia commercial banks and business units. Bank Indonesia also stated that is sees strengthening economic fundamentals in the Indonesian economy, reflected by low inflation (over the past three years), a healthy current account balance, an influx of non-resident capital flows, a stable rupiah exchange rate, an all-time high position of reserve assets and maintained financial system stability. Bank Indonesia believes that this economic context – including global economic gains – forms a great opportunity to create stronger and more sustainable domestic economic growth through sound structural reforms. However, several risks (both external and domestic risks) remain. External risks include monetary policy normalization in several advanced economies, geopolitical tensions and the rising global crude oil price. Domestic risks include ongoing corporate consolidation, sluggish bank intermediation and rising inflationary pressures. Global economic recovery has persisted, while international commodity prices have remained high. Global economic growth in 2018 is projected at more-or-less the same pace as in 2017, with the sources of growth originating from developing economies.
