Indonesia central bank to introduce new products to deepen financial market

[JAKARTA] Indonesia's central bank will issue several new regulations allowing trade in commercial paper and negotiable certificates of deposit (NCDs) in an effort to deepen the country's financial markets, its deputy governor said on Thursday.

Senior deputy governor Mirza Adityaswara told a bankers'seminar that some banks parked excess funds with Bank Indonesia (BI) rather than lend in the interbank money market. As a result, BI managed about 322 trillion rupiah (S$32.88 billion) of banks' short-term excess liquidity, he said.

To encourage banks to make put those funds to work, BI plans to permit traded in several instruments soon, Mr Adityaswara said.

"We will issue a regulation allowing transaction of commercial papers and a regulation allowing NCDs to be traded to make them more liquid," he said.

"This is important so that banks' liquidity is flowing, so that those who need liquidity can get it and those who manage excess liquidity can find a way to channel it," he added.

Until now, Indonesian banks sell NCDs for buyers, who then hold them until maturity as they are not tradable in the secondary market.

After the 1997-8 Asian financial crisis, banks stopped buying commercial papers or unsecured promissory notes, although rules allowing their transaction are still in place, BI officials have said.

In April, BI governor Agus Martowardojo said financial authorities were finalising several measures to encourage banks to trade promissory notes and money market derivatives.

Nanang Hendarsah, the BI official in charge of developing the money market, said the central bank will also issue a regulation to allow banks to sell structured foreign exchange hedging products, like multiple foreign exchange option contracts, to try and lower hedging costs in Indonesia.

REUTERS