Local banks' forex liquidity slides 44 percent: BI

Local banks' foreign exchange liquidity declined significantly with the introduction of new Bank Indonesia rules on vostro accounts, a central bank official says.

On Monday, BI spokesman Difi Johansyah said forex liquidity at local banks dipped to US$4.9 billion in April this year, compared to $7.2 billion at the end of 2010.

This means a $2.1 billion decrease occurred over four months after BI limited banks' short-term foreign loans in foreigners' current accounts (vostro) to 30 percent of their capital, at the end of January this year.

"The limitation is aimed at reducing pressure from capital inflows and to prevent domestic banks channeling foreign funds into monetary instruments," Difi told reporters in Jakarta.

All banks have complied with the new central bank regulation, and a short-term foreign loans to capital ratio of below 25 percent on average, he added.

In an attempt to reduce excessive forex liquidity in the market and to reduce pressure from inflows, the central bank has also increased the amount of foreign currency banks must keep in reserve at the central bank. In March, banks were required to keep at least 5 percent of their foreign currency third-party funds in reserve, and 8 percent in June.