Bank Indonesia (BI) is slated to introduce new measures next month in an effort to increase the country'€™s foreign exchange (FX) supplies.

According to BI economic and monetary policy executive director Juda Agung, the measures will include setting a new benchmark for FX forward selling transactions without underlying reasons.

An FX forward selling is a transaction in which a party agrees to sell a certain amount of FX at a specific time and at an agreed price. At the moment, such transactions can be conducted without underlying reasons, but only up to US$1 million per transaction.

'€œWe are going to increase the maximum limit to $5 million per transaction,'€ Juda said on Friday.

He said the move would provide greater convenience for people or companies wanting to sell their FX, thus triggering higher inflows of foreign-denominated currencies into the money market.

'€œThere is growing demand for FX forward buying right now, but there is only limited FX supply to meet it,'€ Juda added.

At the same time, BI'€™s own FX reserves have been depleting as the central bank carries out intervention to reduce the sharp volatility of the rupiah in the money market and as companies repay their external debts.

The reserves amounted to $103 billion as of Sept. 21, having fallen from $105.3 billion in August and $111.6 billion in March, according to data from BI not yet officially released.

Other measures will include a deduction of withholding tax charged on interest income from time deposit.

'€œWe are coordinating with the government to reduce the tax rate for companies that keep their export earnings onshore. It will be an incentive for them to put the earnings into time deposits,'€ Juda said.

'€œWe are finalizing the rate. It doesn'€™t matter whether they prefer to keep the earnings in US dollars or in rupiah. If they decide to convert them into rupiah, we will offer another rate discount,'€ he added.

At present, the withholding tax is charged 20 percent for time deposits exceeding Rp 7.5 million ($510). The new rate will be implemented progressively, depending on the time period.

BI is also planning to renew several arrangements with its counterparts to ensure the availability of liquidity support to back the declining FX reserves.

BI Governor Agus Martowardojo previously said that the central bank was looking to renew currency swap arrangements with members of ASEAN and the Bank of Korea during the upcoming International Monetary Fund-World Bank annual meeting in Peru in October.

Separately, Macquarie Bank FX and rates strategy head Nizam Idris said that BI should not hesitate to make use of the reserves to stabilize the rupiah.

'€œYes, the latest FX reserves figure is concerning, but Indonesia has accumulated a lot of reserves in the past five years when the commodity prices were booming and it was the right thing to do. Now you use the reserves to stabilize the market,'€ Nizam told The Jakarta Post.

Meanwhile, Bank Central Asia (BCA) economist David Sumual welcomed the measures, but said that the government should begin by implementing a tax amnesty.

'€œIt would be better to proceed with the tax amnesty, then reduce the tax rate to a more competitive level. Many companies still keep their export earnings offshore because the tax regime is more attractive there,'€ he said.

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