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Bank Indonesia Adopts 7-Day Reverse Repo

Bank Indonesia Adopts 7-Day Reverse Repo

(22 August 2016 – Indonesia) The central bank of Indonesia announced it will adopt the seven-day reverse repo rate (7-day RR Rate) as the as the nation's new benchmark monetary tool, replacing the BI rate that failed to influence markets significantly.

The central bank, Bank Indonesia added that that it will keep the BI at 5.25 percent after its two-day August policy meeting (18-19 august 2016).

The new tool has been favoured over the BI Rate follow the latter’s lack of impact on the economy despite having been cut from 7.50 percent to 6.50 percent this year.

Meanwhile, Bank Indonesia kept the deposit facility rate at 4.50 percent, while it cut the lending facility rate to six percent. Earlier, the central bank had said that it will keep a more symmetrical and narrow interest rate corridor, with the lower and upper ceiling at 75 bps below and above the BI 7-Day RR Rate.

The country’s banking industry expects that it will require around three months to feel the real impact of the newly adopted 7-Day RR Rate as it usually requires a long and gradual process for the banking industry to bring down interest rates. The 7-Day RR Rate means that Indonesia's central bank will sell securities with an agreement to buy them back within a seven-day period with the current interest rate at 5.25 percent.

In a statement, Bank Indonesia said it seeks domestic macroeconomic stability amid a still uncertain global economic context. The central bank will continue to focus on possible changes in the monetary policy of the US Federal reserve.

BI does however see room for further monetary easing as Indonesia's inflation is under control, the current account deficit has improved, while the Indonesian rupiah exchange rate has been strengthening so far this year against the Greenback.

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