Indonesia tackling dysfunctional money markets

Jakarta

INDONESIA'S central bank has taken a first step to fix the country's dysfunctional and often volatile short-term money markets - but the journey will be long.

Frustrated by futile attempts to push down the high cost of funds, Bank Indonesia (BI) is shifting in August to a seven-day operating rate as its policy rate, abandoning the current 12-month reference one.

The present policy rate is 6.75 per cent. At the last auction for one-week reverse repo contracts, BI offered 5.50 per cent.

Bankers say the benchmark switch will help BI influence rates, which its recent easing moves - including cutting the policy rate by 75 basis points this year - have failed …