In the Board of Governors’ meeting convened on 29 May 2012, Bank Indonesia decided to implement the policy to deepening financial market and strengthening monetary policy operation. This policy is aimed to respond and anticipate the dynamic of financial market, originated from both domestic and global market. In addition , this measure is expected to promote the stability of macroeconomic condition and strengthen the economic growth momentum.

1. The Policy Background
   • Amid the escalation of global financial market instability, Indonesian economy has recorded some significant achievements. Economic growth in Q1/2012 reached 6.3%, while inflation was under controlled and reached 4.5% on April 2012.
   • Financial system stability is well maintained, indicated by improvement of banks’ capability to absorb instability risk, while keeping its intermediary function well.
   • Nevertheless, some challenges from recent and future economic development still linger. Externally, challenges resulted from the escalation of European crisis resolution uncertainty which could lead to destabilizing domestic financial market.
   • From domestic side, the challenge is mainly related to the shallowness of financial market. This is indicated by les developed transaction volume and limited availability of market instrument including for FX hedging.
   
   
   1. 1. The shallowness of domestic financial market cause capital inflows become under-utilized, including foreign currencies from export proceeds and portfolio investment as well. Part of this foreign currencies are placed by domestic banks in offshore money market.
      

2. Policy Response
   • To respond and anticipate such various challenges, it is deemed necessary for Bank Indonesia to accelerate the process of financial market deepening.
   • Therefore, Bank Indonesia will issue “Term Deposit Instrument” which refers to foreign currency placement of banks in Bank Indonesia.
   • Bank Indonesia will further manage the Term Deposit (foreign currencies) through various foreign exchange transactions to increase foreign exchange supply in the market when needed and or enhance monetary policy operation through FX swap operation as well as promote financial market deepening
   • Some features of such foreign currency Term Deposit are: flexible tenor considering market condition; competitive return; possible to early redemption; excluded from risk weighted asset calculation.
3. Conclusion
   This policy will be implemented shortly and will be further regulated through Bank Indonesia regulation.

Jakarta, 29 May 2012
Office of the Governor

Dody Budi Waluyo
Executive Director