Bank Indonesia Cuts Overnight Repo Rate To 10.25%

Bank Indonesia Tuesday cut the overnight repurchase rate to 10.25% from 12.25% to help boost liquidity in the banking system.

At the same time the central bank increased the overnight Fasilitas Bank Indonesia, or FASBI, rate to 8.25% from 7.25%. The rate is the return given on funds that commercial banks deposit with the central bank.

With such changes, which became effective immediately, the repo rate is 100 basis points above the benchmark rate that is now at 9.25%. Meanwhile, the FASBI rate is now 100 basis points below the key rate.

Bank Indonesia's move, however, hasn't had much impact on the market, with the overnight interbank rate still at 9.35% as of Tuesday.

"The liquidity in the interbank money market isn't extremely tight (despite a recent liquidity squeeze) so the central bank's move doesn't have an immediate impact," a money market dealer with a foreign bank said.

Liquidity in the banking system has been gradually tightening mainly because aggressive government tax collection wasn't followed by speedy disbursement of its budget spending. This boosted the average amount of the government cash deposited with Bank Indonesia to IDR124 trillion during the first seven months of the year from IDR66 trillion in the same period last year.

Meanwhile, the 34% on-year growth in banks' new loans during the first seven months of the year wasn't met by a sufficient increase in deposit growth, which was only 11.3% on year for the same period.

The government said Monday that it would expedite spending disbursement to help improve liquidity in the banking system.

Before the end of the month, the government will disburse IDR22 trillion, the Finance Ministry said Monday.