In a revised regulation slated to be issued this week, BI will reduce the minimum value of transactions in foreign exchange (FX) swap hedging to US$2 million from currently $10 million.

BI expected a lower minimum transaction value in FX swap hedging would encourage more exporters and other banks customers to take up the mechanism, said the central bank’s head of monetary management Nanang Hendarsah.

The central bank will also apply a more efficient rate of currency swap, expecting that the market will follow suit. The FX swap rate will be decided at the FX swap auction.

BI data show that the FX swap rate for a one-month tenor stood at 4.64 percent as of Aug. 16, while rates for three, six and 12 months were 4.88 percent, 5.04 percent and 5.16 percent, respectively.

“It will be cheaper for exporters to get funding through FX swap compared to working capital loans because nowadays, the BI swap rate is becoming cheaper,” Nanang said in Jakarta recently.

Businesspeople have been urging BI to lower the cost of currency hedging in a bid to get exporters to bring their export proceeds to the country, a measure seen as effective in safeguarding the rupiah against heavy depreciation.

The call for a cheaper swap mechanism was first conveyed by Coordinating Economic Minister Darmin Nasution, who is also a former BI governor, as the move would allow exporters to easily convert rupiah into United States dollars when needed.

According to BI data, only 80 to 81 percent of business export proceeds are brought back to the country. Of the repatriated proceeds, only 15 percent is converted into rupiah.

Responding to BI’s relaxation, Indonesian Employers Association (Apindo) chairman Hariyadi Sukamdani said the relaxed swap regulation would help minimize currency risks, therefore encouraging more businesses to hedge their assets.

“However, the swap rate remains a problem as it is still around 5 percent. Businesspeople hope for 4 percent or less than that,” he said on Tuesday.

Nevertheless, bankers threw their support behind BI as the relaxation would help companies manage their FX liquidity.

For mid-size corporations, the swap market would be more attractive with the policy relaxation as it would open their access to cheaper FX funds, said Rico Rizal Budidarmo, treasury and international director at Bank Negara Indonesia (BNI).

“It is expected that in the future, the customer base for the currency hedging [market] will become broader and they [the participants] will become encouraged to conduct transaction in longer tenors because of a lower price,” he said.

Bank Central Asia (BCA) president director Jahja Setiaatmadja was convinced that the relaxed policy would provide certainty for exporters, so that they would be attracted to sell their US dollars and hedge the funds for a longer term.

Darmawan Djunaidi, treasury and international banking director at Bank Mandiri, voiced a similar opinion that the policy would help increase foreign investors’ confidence that the rupiah was under control, and that the US dollar was “available in the domestic market with inexpensive costs”.

Nanang of BI said the central bank would intensify its communications with related stakeholders regarding the FX swap hedging as banks’ customers and exporters had been lacking knowledge about the facility all this time.

He said swap hedging transactions could be done on behalf of banks or their customers. “So, if a bank issued an FX bond, they can hedge it with BI. Similarly, banks’ customers or exporters can also swap their FX [with BI],” he said.

BI will open the FX swap hedging auction from Monday to Friday from 2 p.m. to 4 p.m. The accepted currencies are the US dollar, Chinese yuan, Japanese yen and euro.

— Rachmadea Aisyah contributed to the story

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