TEMPO.CO, Jakarta - When pressure on the rupiah intensifies, as it has in recent days, Bank Indonesia usually responds. One of its most familiar tools is an interest-rate increase. That is why economists and analysts expected the central bank to raise the BI Rate to 6 percent at last week’s board of governors meeting. This time, however, BI declined to meet those expectations, leaving its benchmark rate unchanged at 5.75 percent.
The decision suggests that BI is no longer relying primarily on the policy rate to support the currency. Instead, the central bank has chosen a combination of non-rate measures, ranging from intervention in the foreign-exchange market to promoting the use of local currencies in cross-border transactions.
The most striking feature of this policy mix is BI’s growing reliance on Sekuritas Rupiah Bank Indonesia (SRBI) as a vehicle for keeping foreign capital invested in Indonesia. The data show that overseas holdings of the securities have risen rapidly. Between the start of the year and the end of June, foreign investment in SRBI increased by Rp179 trillion.
The rapid expansion of SRBI as a monetary-policy instrument becomes even clearer when viewed in aggregate. Total outstanding securities have reached Rp1,073 trillion. This indicates that SRBI has absorbed not only foreign capital but also a substantial volume of domestic liquidity. It now appears to be one of the largest monetary-operation instruments in BI’s history.
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