B

ank Indonesia (BI) announced on Friday a number of changes in the central bank'€™s monetary instruments to help stabilize the rupiah, which has fallen sharply in recent days amid a massive outflow of foreign funds from the local equity and debt markets.

Speaking at a press conference at his office, BI Governor Agus Martowardojo said that the changes were made to support the new economic policy package introduced by the government. '€œThis is our way of optimizing the existing monetary instruments,'€ he said.

The changes include the extension of the period of commercial banks'€™ foreign-denominated time deposits held at BI; extending banks'€™ counterparty coverage for derivative transactions; extending exporters'€™ underlying assets to obtain foreign currencies; and extending the exclusion scope of banks'€™ non-foreign loans. BI hopes the new policy will encourage businesses to keep their dollars at the central bank.

With the extension, the time period of the foreign-denominated time deposits will range from one day to 12 months, compared to seven days, 14 days and 30 days previously. '€œInstead of using a nostro [an account held in a foreign country] facility, banks can deposit their funds at BI because their options will be more diverse,'€ he said.

The rupiah gained 0.3 percent to 10,785 per dollar as of 2:40 p.m. in Jakarta, after earlier reaching 10,840, the weakest level since April 2009, according to prices from local banks. The spot rate declined 3.7 percent this week, the biggest drop since the five-day period ending Nov. 21, 2008, and traded at a 5.2 percent premium to the one-month non-deliverable forwards, which fell 0.3 percent to 11,347, data compiled by Bloomberg shows.

To reduce risk in derivative transactions, BI will allow lenders to partner with the central bank as well in its foreign exchange (forex) swap auctions. Prior to the change, a bank was obliged to partner with another commercial bank to pass on or mitigate risk in the transactions.

However, Agus said that banks often faced difficulties in finding partners willing to '€œshare'€ the risks. '€œNow they can use our swap and reswap facility, and share the risk with us,'€ he said.

BI launched the forex swap '€” offered in one-month, three-month and six-month periods '€” in late July to boost rupiah liquidity in the market. At the same time, the swap adds more dollars to BI'€™s forex reserves.

As of July 31, the forex reserves stood at US$92.67 billion and so far, BI has reaped $4.71 billion from the swap.

 BI will also permit exporters to use their export documents as underlying assets more than once within a six-month period in order to obtain foreign currencies, while before, the documents could only be used once.

Following the change, the central bank hopes that exporters will eventually be willing to convert their foreign currencies into rupiah, and thus help stabilize the rupiah, knowing that they can re-obtain the foreign currencies more easily.

'€œWe realize that exporters need foreign currencies for working capital. At the moment they still seem reluctant to convert their funds out of concerns that they may not be able to get them back,'€ Agus said.

BI has decided to widen the scope of banks'€™ non-foreign loans to include divestment funds as well in an effort to keep funds onshore.

So far, the non-foreign loans comprise nonresidents'€™ funds in the form of working capital of foreign banks; time deposits, demand deposits and savings held by embassies; and foreign investors'€™ funds allocated for investments in the stock market or real sector.

According to Agus, because divestment funds will no longer be considered as loans, investors can keep their money in local banks.