BI 7-Day (Reverse) Repo Rate
Bank Indonesia strengthened the monetary operations framework through implementation of the BI 7-Day (Reverse) Repo Rate as the new reference or policy rate, effective 19th August 2016, to replace the BI Rate. Such a move to strengthen the monetary operations framework has become commonplace amongst various central banks and is considered best international practices in the implementation of monetary operations. The monetary operations framework is regularly honed to strengthen policy effectiveness in terms of achieving the predetermined inflation target. The BI 7-Day (Reverse) Repo Rate instrument was introduced as the new policy rate due to its rapid influence on the money market, banking industry and real sector. Furthermore, the BI 7-Day (Reverse) Repo Rate as a new reference rate has a stronger correlation with money market rates, is transactional and encourages financial market deepening, particularly through the use of repo instruments.
The three main expected impacts of introducing the BI 7-Day (Reverse) Repo Rate as the new policy rate are as follows:
- Strengthening the monetary policy signal of the BI 7-Day (Reverse) Repo Rate as the main reference rate in the financial markets;
- Increasing the effectiveness of monetary policy transmission through its influence on money market rates and interest rates in the banking industry; and
- Creating deeper financial markets, particularly in terms of transactions and forming the structure of interest rates in the interbank money market for tenors of 3-12 months.
