In its latest move to help boost liquidity and credit access, the central bank cut the foreign exchange reserve requirement (GWM) for commercial banks from 3 percent to 1 percent.
"This policy is made to increase the liquidity of foreign currencies, especially the U.S. dollar, to be used by banks for transactions with their customers," Bank Indonesia Governor Boediono said Tuesday.
Conventional banks and sharia banks would both be subject to the regulation as well, he said.
BI data show that, with a GWM of 3 percent, the total funds in U.S. dollars stored by banks in BI are worth US$1.1 billion. Reducing the GWM to 1 percent will enable BI to make about another $721 million available to the system.
The central bank also extended the term on forex swaps from one week to one month.
The measures were the latest set of regulations unveiled by the central bank to help boost liquidity in the market and ease credit amid the global credit crunch, which last week sent stock markets across the world tumbling and raised the prospects of a global economic downturn.
BI's moves followed worldwide trends which saw governments ease credit access to boost growth.
Last week, BI reduced the GWM for rupiah from 9.08 percent to 7.5 percent, while also easing the factors to be calculated in the GWM.
"BI simplified the GWM calculation to create more adequate rupiah liquidity," Boediono said.
"This measure was taken to secure temporary demand for U.S. dollars. This will give enough time to banks and other market players to adjust before they adjust their portfolio composition."
Boediono added foreign exchange for domestic companies that have relevant underlying transactions would be provided through banks.
BI has also scrapped the requirement of a minimum balance position for short-term foreign loans. This move was made to reduce pressure to purchase U.S. dollars when foreign customers convert their rupiah accounts into foreign currency accounts.
A sturdy liquidity is expected to keep loans for companies and individuals available, boosting commercial activity and growth prospects.
Against the backdrop of the global financial crisis, the government has revised down its 2009 budget assumptions, including economic growth, which has been set at between 5.5 percent to 6.1 percent from an earlier assumption of 6.3 percent.
