JAKARTA — Indonesia’s central bank said on Thursday that it would soon offer a financial instrument with advantageous interest rates aimed at making it more attractive for banks’ depositors to keep their foreign exchange in the country.
The plan was announced after Bank Indonesia (BI) raised its key policy rate by 50 basis points to 5.25%, a decision aimed at anchoring inflation expectations and stepping up support for the rupiah currency, which has depreciated by around 9% against the dollar so far this year.
Deputy governor Destry Damayanti told an online news conference that BI was working with government ministries and the banking sector on the details of the new special program to keep foreign currency onshore.
She said it would possess characteristics of a market mechanism. It would have “guaranteed liquidity, and can be repriced, meaning it can be rolled over,” Destry said.
“Most importantly, the interest rates will be more competitive than putting funds offshore,” she added.
Indonesia already has rules mandating all export earnings to be received through local banks since 2012, but exporters are allowed to move their money afterwards.
It introduced stricter rules for exporters of natural resources in 2019, including a requirement for them to keep earnings in a special banking account.
The government has also provided tax cuts for exporters who keep their earnings for longer, with bigger incentives given to those who convert their earnings into rupiah.
Destry said 93% of exporters have complied with the rules, but more attractive returns at overseas banks have coaxed exporters to keep their funds outside of Indonesia.
All regional currencies have been depreciating against the dollar this year due to the U.S. Federal Reserve’s aggressive monetary tightening. But the rupiah has fared better than some thanks to Indonesia’s strong export performance.
BI has raised rates by a total of 175 bps since August. (Reporting by Gayatri Suroyo, Stefanno Sulaiman and Bernadette Christina; Editing by Simon Cameron-Moore)