JAKARTA, April 28 Indonesia's central bank
loosened regulations on reserve requirements on Friday to allow
banks some flexibility to better manage liquidity, a step aimed
at reducing volatility in the overnight money market.
From July, banks must keep a minimum 5 percent of their
total deposits at Bank Indonesia (BI) everyday and maintain at
least a 6.5 percent average of total deposits in the period of
two weeks. Banks would get an interest of 2.5 percent from BI.
Under existing rules, banks must park at least 6.5 percent
of deposits at the central bank everyday.
Dody Budi Waluyo, executive director of economic and
monetary policy, told a news conference earlier this week the
new regime gives banks 1.5 percentage points of flexibility in
managing day-to-day reserve requirements. His remarks were
embargoed until the announcement.
"There's a large surplus of liquidity in the system right
now, but the distribution is not equal among banks and ...
smaller banks don't always have access to borrow from bigger
banks in the money market," Waluyo said, adding that the policy
is aimed at tackling such a problem.
Waluyo said the new rules mean banks will not need to resort
to the overnight money market to meet their daily reserve
requirements if they miscalculate their daily deposit needs.
This should help make the market less volatile, he said.
A bank with an abundant amount of cash can also opt to
invest in a better-yielding instrument rather than park it at
the central bank, which would be more profitable, Waluyo added.
The measure was already announced at the central bank's
annual dinner with bankers last year and received a positive
On Thursday, Kartika Wirjoatmodjo, chairman of Indonesian
Banks Association and the chief executive of the biggest bank by
asset Bank Mandiri, said the relaxation of reserve
requirement rules would make banks' liquidity management more
BI kept its benchmark rate unchanged for the sixth straight
meeting last week, saying its policy stance was leaning toward
Walujo reiterated on Friday that the latest measure was not
a change of policy stance, but that the central bank was
"complying with common practice in many central banks."
Last year, its policy was more pro-growth, when it slashed
the benchmark rate six times by 150 basis points and made
several cuts to banks' reserve requirement ratio.
(Reporting by Gayatri Suroyo and Cindy Silviana; Additional
reporting by Hidayat Setiaji; Editing by Jacqueline Wong)