JAKARTA: Indonesia's central bank said on Tuesday it will start issuing dollar term deposits in two weeks to boost supply to the market and help stabilise the tumbling rupiah currency.
The central bank on Monday said it had no intention of implementing new capital controls but was studying other options to manage rupiah and dollar liquidity, as global investors spooked by Europe's debt crisis dumped riskier emerging market assets and fled to the safety of the dollar.
Lack of dollar liquidity has prevented some investors from liquidating their Indonesian assets, increasing their exposure and weighing further on the rupiah.
The central bank said Indonesian banks have huge dollar supplies but were reluctant to do inter-bank trading, preferring to place dollars overseas.
The move to issue term deposits will encourage banks to place dollars into the central bank, which can then channel them to banks that need them, an official with Bank Indonesia (BI) said.
"This is a tactical move by the BI to reclaim FX management credibility. It doesn't amount to a structural policy shift to improve external accounts on a lasting basis. The success of this measure also depends on the kinds of rates they would actually be paying," said Aninda Mitra, economist at ANZ Singapore.
The deposits would be in tenors of seven days to one month.
Another central bank official said the problem was not dollar supply, but dollar flows.
Some analysts were unimpressed.
"It is unclear how this will improve the liquidity situation in the onshore market, where average daily turnover in USD-IDR spot is down to around USD 300-400 million," Standard Chartered said in a note.
Despite suspected central bank intervention, the rupiah fell 2.5 percent on a spot basis on Tuesday to around 9,550 to the dollar, hit by foreign banks' selling and month-end dollar demand from local companies.
It fell by a similar amount on Monday, and has now lost close to 5 percent so far this year.
On Friday, one-month dollar/rupiah non-deliverable forwards (NDFs) rose to 9,780, the highest since late September 2009. The NDFs on Tuesday rose as much as 1.2 percent to 9,725.
"The policy did not surprise me. When Bank Indonesia issued rupiah term deposits, we already anticipated that it would issue dollar term deposits because the policy is linked to absorb excess liquidity in the market," said Juniman, an economist at Bank Internasional Indonesia in Jakarta.
"The policy can be BI's ammunition to intervene in the rupiah. If the rupiah is under pressure, then BI can use the money instead of using forex reserves ... By issuing dollar term deposits, BI could ease panic in the market," Juniman said.
Bank Indonesia was spotted offering dollars in the spot market at 9,450 and 9,500 on Tuesday, dealers said. Central bank officials could not be immediately reached for comment.
In September 2011, during a similar big shakeout in globla financial markets, traders said BI sold up to $800 million a day for about a week during a period of acute stress in onshore markets.
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