Nanang Hendarsah

Executive Director,

Monetary Management Department

BANK INDONESIA

PERTAMINA EXECUTIVE LEADERS FORUM

October 2018
 2
Global growth patterns are no longer synchronized
Global Growth : G3 & China
%yoy US EZ JPN CHN (RHS)
4 8.3

8.1 US 8.1
3
2.9
7.9

2 2.0 EZ 2.2 7.7

1.6
1.3 7.5
1
JP 7.3
0.5
0 7.1

6.9 CH
6.9
-1
6.7 6.7 6.7

-2 6.5
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II
2012 2013 2014 2015 2016 2017 2018
 3

All EM economies under pressure, as risks resurfaced on all fronts

EM FX Change (% Ytd 2018)

MXN 4.47
THB -0.53
MYR -2.60
PEN -2.91
SGD -2.95
RON -3.39
BGN -3.41
COP -3.49
TWD -3.65
CZK -4.28
KRW -5.62
PLN -5.90
CNY -5.96
HUF -7.23
PHP -7.71
CLP -9.44
IDR Indonesia -10.85
RUB -12.26
BRL -12.50
INR -13.47
ZAR -14.35
TRY -34.45
ARS
-49.24
-50.00 -40.00 -30.00 -20.00 -10.00 0.00 10.00
The end of easy money,……the key change in the macroeconomic backdrop for EMs is 4

that the global liquidity expansion is past its peak. The Fed is clearly leading this
process by gradually running down its balance sheet that could end at 2020
Billion USD %

5,000 6.00

4,500 Fed Asset 4,42 trillion

5.25
5.00
4,000
FFR Lower Bound (RHS) 4,17 trillion
3,500
4.00

3,000

2,500 The Fed Balance Sheet 3.00

2,000

2.00
1,500 2.00

1,000
1.00

500

0.25
0 0.00
1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
The combination of increased competition for capital flows, trade frictions, and weak efforts at 5

regaining policy credibility (Turkey & Argentina) imply higher risk premium and continued pressure for
EM-FX
% US DOLLAR INDEX : DXY ?
105.00 15 Dec 2016
13 March 2015
103.02
99.795
100.00
15 Oct 2018
95.15
95.00

90.00

85.00

80.00
79.752
75.00
73.519
70.00
2008 2008 2009 2010 2011 2012 2013 2013 2014 2015 2016 2017 2018
 6

People Bank of China (PBoC) commitment to keeping the RMB stable could possibly be revisited,
if China’s economy were to weaken more rapidly and the US were to escalate trade tensions,
which will affect regional currencies ?
Index
YUAN Renmimbi
7.00
6.96
6.92
6.80

6.60

6.40

6.25
6.20

6.00 6.03

5.80
Oct-12

Oct-14

Oct-18
Jul-12

Jul-14

Oct-15

Oct-16

Oct-17

Jul-18
Jul-15

Jul-16

Jul-17
Jul-13

Oct-13

Apr-17
Jan-12

Apr-12

Jan-13

Apr-13

Jan-14

Apr-14

Jan-18

Apr-18
Jan-15

Apr-15

Jan-16

Apr-16

Jan-17
 7
Global growth Divergences Iintensify uncertainties to Indonesia, …thus far still limited
through portfolio flows channel
RISKS US
TRADE Treasury Argentina
Yield Crisis
WAR
Portfolio EM
MONETARY CURRENCY Super
GROWTH POLICY WAR Dollar Reversal Contagion
DIVERGENCE
DIVERGENCE
Turkey
MONETARY
Crisis
POLICY
Yuan
WAR
Slide

CURRENT ACCOUNT CAPITAL ACCOUNT FOREGN EXCHANGE

Trade-Services-Income + FDI & Portfolio Flows = RESERVE

Remain INFLATION ECONOMIC GROWTH

FINANCIAL SYSTEM
intact (3,5±1 %) (5,13%)
7
 8
Indonesia's dependence on foreign portfolio inflows, which were easily reversed, triggered
by risk-off in the global financial market

Rp Trilion
Net Foreign Flows USD/IDR (RHS)
50.00
2013 2014 2015 2016 2017 2018 9000

40.00 9660
10000

30.00

11000
20.00
11355
11570
10.00
12000
12205
0.00

13070 13047 13000

-10.00
13550 13560
-20.00 13889 14000

-30.00 14645
15000
-40.00 The Fed Taper China Yuan
Tantrum Devaluation Trump Victory 15230

-50.00 16000
 9
The exit strategy from the Advanced Economies would change the global economy in
fundamental way, especially for emerging markets. The adjustment process have been felt
harder in countries with current account deficit
% of GDP

3.00
2.5 Indonesia Current Account (% GDP)
2.00
1.4

1.00

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
0.00

-1.00 -0.8
-1.0
-2.00
-2.0
-2.2 -2.3
-3.00
-3.0
-4.00

-4.2
-5.00
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
 10
Indonesia need a bold and consistencies structural reform to strengthen the balance of
payment structure, including by accelerating financial market deepening

Current Account
Deficit

Capital & Financial

Account

FDI WITH EXPORT ORIENTED

 FOREIGN DIRECT
INVESTMENT
 PORTOFOLIO
INVESTMENT
FINANCIAL MARKET DEEPENING
 11
Having the increasing current deficit level, and as Indonesia was exposed to capital
flows volatility, pressuring the Rupiah exchange rate, ….. left us with no room except to
step up our policy response

BI will continue to be "pre-emptive" and that the

monetary policy stance remains hawkish.

BI will continue to maintain the stability of the exchange

rate. But, in the long run, we view a flexible exchange rate
regime as the most effective buffer “as shock absorber” on
external shock and for capital flow volatility
 12
But, given the complexity and challenges, BI pursue “a middle solution” as policy mix
to nurture the macroeconomic stability, rather than corner solution

Ahead the curve and pre-emptive to respond on global and domestic

challenges, but without putting growth at risk (a soft landing)
INTEREST RATE
1

Middle
Solution
2 3
EXCHANGE RATE FX RESERVE ADEQUACY
Flexible exchange as shock absorber to reduce CA deficit, without maintained a sufficient amount of reserve as
jeopardizing financial system stability and public confidence buffer to future shock
 13
Given the prolong of USD strength at the global scale, BI preserved the IDR moving in “a
measured pace”, compared to others major EM currencies

Exchange Rate Index : Emerging Market

(Index, 1 Jan 2018 = 100)
BRL
125
PHP ZAR INR BRL RUB IDR
120

depreciate against USD

RUB
ZAR
115
INR
IDR
110

105

100

95

90
Jan-18
Jan-18
Jan-18
Jan-18
Jan-18

Jul-18
Jul-18
Jul-18
Jul-18
Jul-18

Sep-18
Sep-18
Sep-18
Sep-18
Apr-18
Apr-18
Apr-18
Apr-18
Apr-18
Feb-18
Feb-18
Feb-18
Feb-18
Mar-18
Mar-18
Mar-18
Mar-18

Jun-18
Jun-18
Jun-18
Jun-18

Aug-18
Aug-18
Aug-18
Aug-18

Oct-18
Oct-18
May-18
May-18
May-18
May-18
 14
The challenges going forward for policymakers are, not only to have the right set of “firm
policy responses in place” to deal with these short-term volatilities, but also to assure that
all the market participants and business sectors are well prepared for the scenarios that
could be expected where we are still facing global uncertainty
 15

Why Hedged ?
in these uncertain times where information and confidence are very important
in influencing market actions, protection or hedging against the foreign
exchange risks should be viewed as the foremost strategy.

1. Hedging ensures continuity of cash flows

2. Hedging encourages capital investment
3. Hedging for enhancing a firm’s value
 16

BI has taken many steps to promote the use of hedging instrument

including by relaxing the foreign exchange regulation

Hedging Instruments
1. FX Forward (Delivery & Non-Delivery)
2. FX Swap
3. Cross Currency Swap (CCS)
4. Plain Vanilla Option
5. Structure Product
 Call Spread Option (CSO)
 17
We have been concerned that the sharp rise in offshore NDF points during periods of
market stress frequently influence market sentiment negatively and often pressures
the onshore JISDOR fix higher
Turkey& Argentina
Pressure
Offshore NDF
15300

Spot IDR
IDR NDF 1M
14800

14300

13800

13300
1-Jan-18 1-Feb-18 1-Mar-18 1-Apr-18 1-May-18 1-Jun-18 1-Jul-18 1-Aug-18 1-Sep-18 1-Oct-18
 18
As the offshore NDF points has become expensive, a number of offshore players tap into
“onshore forward deliverable market”, but also prompting demand on spot market
Juta USD NDF Price Kurs

5,000 14,600

Domestic Corp
Offshore participants 14,400
4,000 offshore participants

NDF 1M (RHS) 14,200

3,000
14,000

2,000 13,800

13,600
1,000

13,400

0
(-) = Jual 13,200

-1,000 13,000
Jan-16 A pr-16 Jul-16 Oct-16 Jan-17 A pr-17 Jul-17 Oct-17 Jan-18 A pr-18 Jul-18 Oct-18
 19
Since early September 2018, BI has kept the onshore swap premium stable at
the level that can compete against market swap rate

Market Swap Rate v.s BI Swap Rate 5.47% BI Swap Rate

18 August 2018

5.27%

5.20% 5.18%
5.07%
BI Swap Rate
5.08% 5.04% 15 Oct 2018
4.96%
4.87%
4.80%
4.80% Market Swap Rate
4.72% 15 Oct 2018

4.58%
4.51%
4.40%

15 Oct 18 (Bid Price) 09 Aug 18 (BI Swap Rate) 15 Oct 18 (BI Swap Rate)
 20
Domestic Non-Deliverable Forward (DNDF)
• To provide an alternative hedging instrument that could help reduce volatility in the FX market
• The market would be open in mid November 2018 and apply to onshore and foreign participants with
underlying asset and transactions to hedge

Bank – ONSHORE CLIENTS Bank – OFFSHORE CLIENTS INTERBANK MARKET

REQUIREMENT

-
1 2 3

REQUIRED TO TRADE NOTIONAL TRADE TENOR ≤

SUBMIT AMOUNT ≤ UNDERLYING
UNDERLYIN G UNDERLYING TENOR
DOCUMENT VALUE
 21

the new market is expected to anchor the JISDOR and USD/IDR NDF points, and hence FX
expectations, more effectively as the settlement would be done in IDR and on a net basis

JISDOR
15.000
Rp 10000

Buy DNDF Sell DNDF

DNDF RATE
14.800 14.800
14.800

Transaction Fixing Settlement

Date Date Date
5 Sep 2018 5 Okt 2018 7 Okt 2018
 22

THANK YOU
 23

GRAPH & TABLE

PRINCIPLES OF DOMESTIC NON-DELIVERABLE FORWARD (DNDF) TRANSACTION 24

DEFINITION Domestic Non-Deliverable Forward (DNDF) Transaction is a plain vanilla derivative FX against IDR transaction in
the form of forward transaction with fixing mechanism (netting), in the domestic market.

PURPOSE a. Accelerate domestic forex market deepening.

b. Provide an alternative hedging instrument for market players.

CHARACTERISTICS a. DNDF transactions can be done by banks with customer/foreign parties to hedge foreign exchange
risks.
b. DNDF transactions between bank and customer/foreign party must be supported by underlying
transaction.
c. The amount and period of a DNDF transaction must not exceed the amount and period of its
underlying transaction

SETTLEMENT a. Settlements are done with fixing mechanism in Rupiah

b. Fixing mechanism is a settlement without full movement of funds by counting the difference (netting) between
forward transaction rate and the reference rate (JISDOR) at a certain date which has been set in the contract
(fixing date)
c. The reference rates are JISDOR for USD/IDR and Bank Indonesia FX Transaction Midrate for non-USD/IDR

DNDF UNDERLYING a. Trade in goods and services

TRANSACTIONS b. Investments, loan, capital, and other investments, both onshore and offshore
c. Bank loan in foreign currency for trade and investment purposes
BANK INDONESIA’S POLICY MIX : SEPTEMBER 2018
The BI Board of Governors agreed on 26th and 27th September 2018 to raise the BI 7-day Reverse Repo Rate by 25 bps to 5.75%,
while also raising the Deposit Facility (DF) and Lending Facility (LF) rates by 25 bps to 5.00% and 6.50% respectively.
Consistent with efforts to
lower the current account
deficit within a manageable
threshold while maintaining
Raises the BI
the attractiveness of the
7-day Repo
domestic financial markets,
Rate by 25
thus further strengthens
bps to 5.75%.
Indonesia’s external
resilience despite
widespread global
uncertainty.
Source: Bank Indonesia
25
Strengthens the Rupiah
stability, by raising the Monitors prevailing
Strengthens
policy rate and economic developments,
coordination with
implementing Domestic such as the current account
the Government and
Non-Deliverable Forwards deficit, exchange rates,
other relevant
(DNDF) transactions in financial system stability
authorities to
order to accelerate forex and inflation, as follow-up
maintain economic
market deepening while measures to maintain
stability and bolster
providing alternate hedging macroeconomic and
external resilience.
instrument for banks and financial system stability.
corporations.
 26
Indonesia’s economic growth in 2018 – 2019 remain solid albeit potential downside risk from external factors due to heightened
global economic uncertainty.

GDP Inflation CAD Credit Deposit

2018 5.0-5.4% 3.5±1% 2.5-3.0% GDP 10-12% 8-10%

2019 5.1-5.5% 3.5±1% ± 2.5% GDP

 27

FOREIGN EXCHANGE MARKET

FOREIGN CURRENCY MARKET TRANSACTIONS DERIVATIVE TRANSACTION TO TOTAL FOREX TRANSACTIONS RATIO

Source: Bank Indonesia Source: Bank Indonesia

THE MANDATORY USE OF RUPIAH HAS REDUCED FOREIGN EXCHANGE TRANSACTIONS 28

Foreign exchange transactions between residents declined after the implementation of the mandatory use
of Rupiah
TRANSACTIONS DOMINATED BY GOODS TRANSACTIONS (JULY 2018)
FOREIGN EXCHANGE TRANSACTIONS BETWEEN RESIDENTS SHOWED A DOWNWARD TREND

Million USD

5,508 Mandatory Use of Rupiah in TOTAL

Indonesia’s Territory
5,090
Goods Transaction
4,252
Service Transaction
4,140
3,850 Others
3,322
THE LARGEST TRANSACTION OCCURRED IN INTER-DOMESTIC BANKS

2,3502,297
Million USD Inter-Domestic Banks Domestic Banks to Foreign Banks
2,291 6,000
2,066 Foreign Banks to Domestic Banks Inter-Foreign Banks
1,966 1,943
1,8421,750 5,000
1,652 1,742 1,7181,680
1,636 1,622
1,451 4,000
1281
3,000
930 628
769
619 2,000
317
1,000 235
149 277 135
0 887

Feb
Jan

Apr

Jun**
Jun

Sep

Jun

Sep

Jun

Sep
Mar

Dec

Mar

Dec

Mar

Dec

Mar

May*

Jul**
Feb
Jan

Apr

Jun**
Jun

Sep

Jun

Sep

Jun

Sep
Mar

Dec

Mar

Dec

Mar

Dec

Mar

May*

Jul**

2015 2016 2017 2018

2015 2016 2017 2018 *)
Source: Bank Indonesia
Source: Bank Indonesia
 STRENGTHENED PRIVATE EXTERNAL DEBT RISK MANAGEMENT 29

DEBT BURDEN INDICATOR (EXTERNAL DEBT/GDP) REMAINS COMPARABLE ENCOURAGING CORPORATES COMPLIANCE ON HEDGING RATIO &
TO PEERS RATING LIQUIDITY RATIO
External Debt/GDP (%)
[VALUE] ; Hedging Ratio* [VALUE] ;
63.7 10,9% 6,9%
Bulgaria 64.7
70.3
40.0
Colombia 42.2
40.2
32.2
Indonesia 32.8
34.7
20.4
Philippines 21.6 ≤ 3 months > 3 - 6 months
23.3
22.7
India 22.4 [VALUE];
22.5 [VALUE];
93,1%
0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 89,1%

2019F 2018F 2017

Source: Moody’s Statistical Handbook, May 2018
REGULATION ON PRUDENTIAL PRINCIPLE IN MANAGING EXTERNAL Liquidity Ratio*

DEBT [VALUE] ;
12,7%

[VALUE];
87,3%

Comply Not Comply

*Data as of Q1 2018, with total population 2.680 corporates

Source: Bank Indonesia

Source: Bank Indonesia

POSITIVE DEVELOPMENT IN FINANCIAL INTERMEDIATION 30

Bank lending growth in the first half of 2018 demonstrates a notable improvement. In the domestic capital markets, capital
raising by corporations (particularly through right issues and corporate bond issuance) remains strong.
BANK LENDING GROWTH WAS IN AN IMPROVING TREND IN THE GROWTH OF FINANCING CHANNELED BY MULTIFINANCE COMPANIES
SEMESTER I – 2018, WHICH CONTINUES IN JULY GROWS MODERATELY AND STARTS TO IMPROVE
IDR tn % yoy
5,500 Bank Loans YoY Growth (rhs) 11.34% 12% IDR tn
Financing Growth (rhs) yoy
450 10%
10%
5,000 4,976 429
8%
8% 425
6%
4,500 6%
400
4%
5.53% 4%
4,000 375
2% 2%

3,500 0% 350 0%

CAPITAL RAISING THROUGH RIGHTS ISSUES AND CORPORATE BOND GROSS PREMIUM REVENUES IN THE INSURANCE INDUSTRY
ISSUANCE REMAINED STRONG IN JAN-AUG 2018 CONTINUOUSLY GROW, PROVIDING ADDITIONAL LIQUIDITY TO THE
IDR Tn
MARKET
IDR tn
180 450
IPO equity Rights Issue Corporate Bonds & Sukuk 400
160
140 350
120 300 252
100 82.53 250
80 200
60 150
40 23.2 100
20 12.6 50
0 0
2012 2013 2014 2015 2016 2017 Jan-Aug 2012 2013 2014 2015 2016 2017 Jan-Jul18
Source: Financial Service Authority (OJK)
2018
FINANCIAL INSTITUTIONS REMAIN ROBUST 31

Domestic financial institutions exhibit a generally sound condition. Capital adequacy is maintained well above the minimum
requirements, profitability and leverage are maintained at a sufficient level, banks are equipped with sufficient liquid assets and
The non-performing loan (NPL) ratio is maintained below the threshold.
CAR OF THE BANKING SECTOR REMAINS AT A HIGH LEVEL. THE RATIO OF LIQUID ASSETS TO DEPOSITS IN THE BANKING SECTOR
MODERATES IN LINE WITH RECENT OUTFLOWS, BUT IS MAINTAINED WELL
% ABOVE%
THE THRESHOLD
CAR Tier 1 %
24.0 140 Liquid Assets to Non-Core Deposits (lhs) Liquid Assets to Deposit (rhs) 30
22.56 130 26
23.0
120 21.00
22.0 110 22
20.92 100 18
21.0 100.10
90 14
20.0 80
70 10
19.0
60 6
18.0

GROSS & NET NPL RATIOS WERE 2.73% & 1.26% RESPECTIVELY, MAINTAINED
PROFITABILITY OF THE BANKING SECTOR WAS RELATIVELY STABLE BELOW THE THRESHOLD

% %
6.0 Net Interest Margin Return on Assets 3.5 NPL Net NPL Gross
5.12
3.0 2.73
5.0
2.5
4.0
2.0
3.0 2.46
1.5 1.26
2.0
1.0
1.0
0.5
0.0
0.0

Source: Financial Service Authority (OJK)

AMPLE LINES OF DEFENSE AGAINST EXTERNAL SHOCKS 32













Source: Bank Indonesia

 33
IMPROVEMENT IN AVERAGE RESERVE REQUIREMENT RATIOS

Source: Bank Indonesia

 34

PRINCIPLES OF MACROPRUDENTIAL INTERMEDIATION RATIO (MIR) AND MACROPRUDENTIAL LIQUIDITY BUFFER (MLB)

Source: Bank Indonesia

 35

RELAXING THE LOAN-TO-VALUE (LTV) AND FINANCING-TO-VALUE (FTV) RATIOS

2. Relaxing the amount of loan/financing facility through indent

mechanism to a maximum of 5 facilities without taking
account of the orders
3. Adjusting the arrangement of stages and amount of property
loan/financing disbursement of indent property:

Source: Bank Indonesia

 36
BANK INDONESIA ALSO PROVIDES FOREIGN EXCHANGE SWAPS AT LOW PRICES
LOW-COST FX SWAP RATES ENCOURAGE INCREASED MARKET INTEREST ...
There are two types of FX swaps in BI monetary
operations: BI Swap Rate BI Swap Rate
BI Swap FX Auction (Sept 26th 2018) (Oct 2nd 2018)
1. FX Swap for managing banking liquidity
Tenor
• Implementation of its operations through the auction Weighted Average (%) Weighted Average (%)
system (auction). 1 month 4.50 4.71
• Tenors: 1, 3, 6 and 12 months. 4.79 5.01
3 months
• Auction starts at 10:00 am to 11.30 am.
6 months 4.93 5.16
• The auction results are announced before 2.00 pm.
12 months 5.02 5.25
• The auction results are published on the LHBU and
the BI website. MARKET SWAP RATES ALSO DROPPED AFTER THE STRENGTHENING OF BANK INDONESIA
MONETARY OPERATIONS...
2. FX Swap Hedging
• Tenor: 3, 6, and 12 months. Market Swap Rate Market Swap
• The operating system uses the "window" opened (Sept 26th 2018) Rate
every day from 2:00 pm to 4.00 pm Market FX Swap Tenor (Oct 2nd 2018)

• Pricing is formed from FX Swap auction results. Weighted Average Weighted

(%) Average (%)
• The mechanism allows bank customers (exporters,
foreign debtors, foreign investors who buy SBN, and 1 month 4.16 4.28
economic players in the real sector) to swap foreign 3 months 4.59 4.44
exchange (USD, Euro, JPY & CNH) to the bank, and
then the bank swaps to Bank Indonesia. 6 months 4.37 4.69
4.86 4.87
PRINCIPLES OF INDONIA (INDONESIA OVERNIGHT INDEX AVERAGE) 37

IndONIA is intended to take role as one of money market benchmark rates of which it would be used by market
players as reference for the purpose of loan interest rates determination and financial instruments pricing as well
as financial instruments performance measurement. IndONIA is an index of interest rate for unsecured overnight
interbank rupiah lending transactions in Indonesia which is calculated periodically and available to public.

IndONIA is expected to be able to replace the role of overnight JIBOR as the overnight money market benchmark
rate. As of 2 January 2019, Bank Indonesia will no longer publish overnight JIBOR and it is expected that existing
financial contracts which use overnight JIBOR as a reference for overnight tenor, will shift to IndONIA as the
most recent reference for overnight tenor.

IndONIA
CURRENT JIBOR TENOR (Indonesia Overnight TERM JIBOR
O/N, 1W, 1M, 3M, 6M, 12M Index Average) 1W, 1M, 3M, 6M, 12M
POLICY COORDINATION WITH AUTHORITIES STRENGTHENED 38

Strengthen coordination with the Government and relevant authorities to maintain economic stability
and external resilience amid global economic uncertainty
Coordination in Maintaining Macroeconomic Stability
1. Maintain the attractiveness of rupiah-denominated assets, particularly Government bonds.
2. Coordination to mantain inflation through TPI and TPID.
Coordination in Reducing Current Transaction Deficits
1. Implementation of the B20 program starting September 1, 2018 to reduce oil imports and encourage the export of palm
oil.
2. Synergy in accelerating foreign exchange revenue from priority tourist destinations.
3. Encourage exports and reduce imports through fiscal policy, trade, industry and local content requirement.

Coordination in Acceleration of Financial Market Deepening for Economic Financing, including Infrastructure
1. Infrastructure financing through securities issuance such as Earning Backed Securities (EBS), Limited Participation
Mutual Funds (LPMF), project bonds, blended finance, and so on.
2. Corporate financing through capital markets such as Medium Term Notes (MTN), Promissory Notes (PN), and
Commercial Papers (CPs).
 39
INDONESIA'S ECONOMY REMAINS ON A STRONG FOOTING

*) data as of October 2 2018

Source: various sources

CONTINUOUS PROGRAM ON CAPITAL MARKET DEEPENING
…Continuously Strengthened, Including Through Capital Market Deepening Initiatives
ENHANCING THE SUPPLY-SIDE
 Simplification of public-offering requirements and
procedures
 Development of debt market
 Development of mutual fund industry
 Development of other products, including those to support
infrastructure development (private equity funds, REITs,
ABS)
 Development of Islamic capital market
 Development of municipal bonds
ENHANCING THE DEMAND-SIDE
 Enhancing the role of the domestic institutional investors
(insurers & pension funds) in capital markets
 Development of the domestic investor base (conducting
investor education programs)
 Expansion of distribution channels of market products
Source: Financial Service Authority (OJK)
40
STRENGTHENING MARKET
INFRASTRUCTURE
 Expansion of Single Investor Identification (SID) coverage
 Development of electronic trading platform (ETP) in the debt
market
 Development of Integrated Investment Management System
(S-INVEST)
 Enhancing the clearing and settlement process
 Enhancement of capital market data warehouse
 Development of Extensible Business Reporting Language
(XBRL) for issuers
STRENGTHENING GOVERNANCE
 Development of market players’ capacity
 Enhancement of GCG for publicly-listed companies
 Development of repo regulations and infrastructure
 41
ECONOMIC RISKS

External Risks Domestic Risks

Widening divergence in global economic growth, tight  Widening current account deficit
monetary policy stance in emerging markets to offset US tight
monetary policy Continuing pressure on the Rupiah
Continuing broad based US dollar appreciation
Increasing tensions in trade relations between the United States
and its trading partner
Capital flows from emerging markets to developed countries
Slowing world trade volume and higher oil prices.
 42
BANK INDONESIA’S POLICY MIX 2018 : TO MAINTAIN MACROECONOMIC AND FINANCIAL SYSTEM STABILITY

 Accommodative Macroprudential Policy by lowering

 Consistent policy rate with effort to LTV for property financing
strengthen external resilience  Implementation of Macroprudential Intermediation
 Exchange rate policy consistent with 2 Ratio (RIM) and Macroprudential Liquidity Buffer
fundamental and managing excess
volatility
1 (MLB)
Macro-
 Optimizing OMO to provide adequate Monetary prudential
liquidity Policy Policy

 Electronification: Social Program, E-

3
Payment for Government
 Financial Technology
 National Payment Gateway
Payment
Coordination
System
with other
Policy
Authorities
 Efforts to improve current account deficit
 Controlling inflation at national and 5 4
regional level
Financial Market
 Structural reforms  Introduced new instrument in FX market such as CSO and D-
Deepening
 Financial deepening & stability: with NDF to provide hedging instrument
Financial System Stability Committee,  Introduced Overnight Index Swap (OIS) and Interest Rate
Financial Services Authority Swap (IRS) instruments in money market
 Developing market instruments for financing infrastructure

Source: Bank Indonesia

 43
BANK INDONESIA’S POLICY DIRECTION TO MAINTAIN RUPIAH STABILITY AND SUPPORT GROWTH

MEASURES TO STABILIZE RUPIAH EXCHANGE RATE MEASURES TO SUPPORT GROWTH

1 To stabilise the rupiah exchange

A pre-emptive, front-
loading and ahead-of-the-
curve policy response
1
Further easing of To bolster the growth of the property
rate, while consistently controlling macroprudential policy sector which has positive impact to the
inflation within the 2018-2019
economy
target range of 3.5±1%

2 2
Dual intervention in the Coordination with the Coordinating
To stabilise the rupiah exchange
foreign exchange market Ministry of Economic Affairs, the
rate, adjust fair prices in the Policy coordination to
and government securities Ministry of Finance, and the Financial
financial markets and maintain accelerate financial
(Surat Berharga Negara – Services Authority to accelerate financial
adequate liquidity in the money market deepening
SBN) market in a market deepening, particularly in private
market
measured way financing for infrastructure.

3 3 Electronification to support social

Strengthening the monetary
operations in the foreign
exchange and money
markets
To maintain adequate liquidity in Payment system
development to support assistance disbursement and financial
the rupiah money market and
digital economy transcation of the central and regional
interbank swap market
government

Sharia economy and finance

4 Intensive communication,
4 development to create halal value chain,
To form rational expectations, thus Sharia economy and
especially to market players, sharia financal sector development both
helping to mitigate the rupiah finance development
banks, businesses, and for commercial and social purposes,
overshooting its fundamental level.
economists including its education and
communication
STRATEGIES TO ACHIEVE THE INFLATION TARGET 44

2018-2019 Target 2020-2021 Target

Achieving inflation at 3,5%±1% Achieving inflation at 3,0%±1%

• Maintaining core inflation • Maintaining core inflation
• Maintaining volatile food stability at 4-5% • Maintaining volatile food inflation less than 4%
• Controlling administered price inflation • Controlling administered price inflation

4 Strategies

1. Price Affordability 2. Supply Availability 3. Well Managed Distribution 4. Effective Communication

Strengthening
production, Encouraging
Strengthening
Government trade Improving
Stabilizing Managing Strengthening Improving central-
food reserves cooperation trade
the price demand side institution data quality regional
and food between infrastructure
coordination
export-import regions
management
45
 46
The portfolio reversal (Govt Bond) are mainly sparked by short term carry trader

323,000 Real Money Investor Carry trade(LHS) 28,000

320,573
25,662 319,071 26,000
318,000
24,000

22,000

313,000
20,000

309,080 18,131 18,000

308,000
16,000

14,000
303,000
12,895
12,000

298,000 10,000
 47

Billion USD

Current Account Capital & Financial Account Balance of Payment

16 2012 2013 2014 2015 2016 2017 2018

11 10.2

6 6.5 6.0
5.1 5.4 4.0
4.4

-2.5
-4 -4.3
-4.6
-6.6
-9
-8.0

-14
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II
2012 2013 2014 2015 2016 2017 2018
 0
10
20
30
40
50

-40
-30
-20
-10

-50
Jan-13

Mar-13 Rp trilion
May-13

Jul-13

Sep-13
2013

Nov-13

Jan-14

Mar-14

May-14
2014

Jul-14

Sep-14

Nov-14

Jan-15

Mar-15
Equity

May-15
2015

Jul-15

Sep-15

Nov-15

Jan-16

Mar-16

May-16
2016
Gov Bond

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17
2017

May-17

Jul-17

Sep-17

Nov-17

Jan-18

Mar-18
2018

May-18

Jul-18

Sep-18
48
 49
Primary income deficit in actual fact take a large share on the CA deficit
Goods Services Primary Income Secondary Income Current Account
8
Billion USD

2 Services
0
Goods
-2

-4

-6

Primary income deficit

-8 CA
-10

-12

-14
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II
2012 2013 2014 2015 2016 2017 2018
 50

A good reason to buy forward, but lack of forward supply side instigate an
other problem at spot market

FX
2
Buy Spot market

SELL
FX SWAP

1 1
Buy Forward Sell Forward

FX SWAP
AUCTION
3 Buy Forward
BUY
FX SWAP
Sell Spot