Thirty local banks operating in the domestic market in Indonesia have agreed to set up an onshore rupiah fixing spot, a reference rate to settle rupiah forward transactions domestically, the nation’s central bank said. The latest action might damp speculation on the rupiah as Bank Indonesia urged the country’s commercial banks not to quote the offshore nondelivery forward rate. The bank’s recent move follows similar arrangements in other countries such as Malaysia, Singapore, Thailand, and South Korea, as Bank Indonesia tries to prop up a weakening rupiah.
The currency has declined in the past year partly due to concerns about the country’s current account deficit. “In the agreement, a reference rate was formed by a number of banks that will be appointed to be contributors. Thus, the exchange rate was not established or set by BI, “ said Hendar, the central bank’s executive director of monetary management, in Jakarta on Thursday. Hendar said that the reference rate would be announced as soon as the banks agree on a daily settlement time for the fixing spot rate.
He added that in similar practices at other countries the time was set at between 10.00 a.m. and noon. Difi Ahmad Johansyah, a central bank spokesman, said that the fixing spot rate could be used in domestic forward transactions and other transactions such as debt payment in foreign currency. Currently, the country uses three reference rates. First is the spot exchange rate reported on the Bloomberg and Reuters terminals, which may change at any time depending on banks’ quotations but closes at 4 p.m. Second, the central bank rate, which is used to deal with a third party or bank.
Third is the middle rate for financial reporting purposes, Difi said. On Wednesday the central bank urged commercial banks not to use offshore NDF rates as their benchmark for forward rupiah, as the local banks are not allowed to be involved in such transactions. Bank Indonesia’s deputy governor Halim Alamsyah said on Thursday that the central bank was investigating 30 banks that have been active in foreign exchange transactions for any involvement in NDF transactions.
Different and incomplete quotation rates in Indonesia have prompted many foreign exchange dealers to use the offshore exchange markets as NDF as a reference rate. This practice has been one factor in causing the rupiah to weaken against the dollar. Jahja Setiaatmadja, president director of Bank Central Asia, welcomed the agreement and said he hopes other big banks would join in establishing the fixing spot. “Individually, we are ready,” Jahja told reporters on Thursday.
Bank Indonesia officials, though, said the latest move was not a type of currency control. The central adopts a free-floating exchange system. Still, some analysts said a call to 30 banks in Indonesia would not be enough. Indonesia is home to 120 commercial lenders. Some of the lenders do not have licenses to operate as foreign exchange banks.
source : the jakarta globe
source : the jakarta globe
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