January 24, 2019 / 5:08 AM / 6 months ago

Indonesia c.bank to auction more repo contracts to expand liquidity

JAKARTA, Jan 24 (Reuters) - Indonesia’s central bank will exercise an “active monetary operation” by holding more auctions for repo contracts every week to help the banking industry manage short-term liquidity, a senior official told Reuters on Thursday.

Bank Indonesia (BI) will hold two term repo auctions every week to sell 1-week, 2-week and 1-month contracts, until at least Feb. 21, Nanang Hendarsah, its head of monetary management said, describing this as “the first stage” of making this form of open market operation a regular one.

The auctions will be held Tuesday and Thursday.

He said BI could increase the frequency to thrice a week and even add non-regular auctions “if conditions met requirements set by BI”.

“The purpose of activating regular term repo (auctions) is to provide certainty for banks in managing short-term liquidity,” Hendarsah said, adding that this would also help banks “optimise” BI’s easing of reserve requirement rules.

From May to November last year, BI raised interest rates six times in a bid to reduce the economy’s yawning current account deficit and maintain asset attractiveness for foreign investors as U.S. interest rates rise.

Analysts said the rate hikes have hit smaller banks with liquidity problems.

The central bank has eased liquidity buffer rules since December to address this issue. It has also continued to pledge to provide the market with adequate liquidity.

Under the new rules, banks are still required to maintain a 6.5 percent of savings as required reserves at BI over two weeks, but the portion for daily deposit will be 3.5 percent, down one percentage point compared to previous rules. (Reporting by Maikel Jefriando; Additional reporting by Tabita Diela; Writing by Gayatri Suroyo; Editing by Kim COghill)

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