Bank Indonesia to Mitigate Economic Impact of Covid-19 Outbreak

Jakarta. Indonesia's central bank, Bank Indonesia, has issued five policies to maintain monetary and financial stability during the global Covid-19 outbreak. Bank Indonesia Governor Perry Warjiyo said the bank would at first focus on intensifying its "triple intervention" on the financial market.

Perry said the bank would optimize intervention on the spot market, domestic non-delivery forward (DNDF) market and state bond (SBN) market to minimize volatile escalation of the rupiah's exchange rate.

"We're intensifying our triple intervention to stabilize the rupiah's exchange rate," Perry said at the Bank Indonesia headquarters in Jakarta on Monday.

Starting March 16, Perry said the bank would also lower the statutory reserve requirement (GWM) ratio on foreign exchange from 8 percent to 4 percent for conventional banks and Islamic banks.

Perry claimed this policy would increase foreign exchange liquidity by around $3.2 billion and strengthen the rupiah. 

"We will also lower the rupiah's statutory reserve requirement by 50 basis points for banks that provide funding for export and import activities. This policy will be implemented for nine months starting April 1 in coordination with the government," he said.

According to Perry, Indonesian importers and exporters have been severly hampered by the Covid-19 outbreak, especially by disruptions in goods distribution and rising trading costs.

Perry hopes the central bank's new policies will help importers and exporters regain their ground. 

The BI governor said the central bank would also expand the scope and type of underlying transactions to provide alternative hedging instruments for foreign investors.

"Foreign investors who sell their SBNs and put the proceeds in Indonesian bank accounts can use them as underlying transactions in the DNDF market. We believe foreign investors will keep their commitment to invest in Indonesia in the long term," he said.

Perry said global investors could enlist the help of both domestic and global custodial banks in their investment activities in Indonesia.

"These policies merely reinforce our previous policies. We're coordinating them with the government and the Financial Services Authority [OJK]. We will continue monitoring the financial market and global economic development in the aftermath of the Covid-19 outbreak," Perry said.

Last month, the central bank had already issued other policies to mitigate Covid-19's impact on the Indonesian economy by lowering BI's 7-day reserve repo rate (BI7DRR) to 4.75 percent, strengthening monetary operations strategy, adjusting the provision of macroprudential intermediation ratio (RIM), expanding the acceptance of QR Indonesian Standard (QRIS) and speeding up the electronification of social assistance fund and local government financial transaction.

Uncertainties in Global Financial Market

According to Perry, the Covid-19 outbreak has caused uncertainties in the global financial market, notably since the disease started spreading to countries outside China.

"Last week, various indicators showed huge pressures on the global financial market, including falling stock price indexes in major markets and yield in the US treasury, and also strong pressures on currencies," Perry said.

Perry said the global uncertainties also put massive pressure on investors to withdraw their money from financial markets in some countries, including Indonesia.

"We've seen some capital outflow as investors withdraw their capital and put them in more secure forms of investment such as gold and cash," he said.

Responding to the announcement on Monday of Indonesia's first Covid-19 cases, Perry said he believed the government is handling the cases carefully by following international standard procedures in coordination with the World Health Organization (WHO).

"Seeing it from the economic point of view, Bank Indonesia will keep coordinating with the government all efforts to mitigate the impact of the Covid-19 outbreak on the domestic economy and the rupiah's exchange rate. Based on our assessment, the toughest time will be between February and March. Hopefully, things will start getting better in April," Perry said.