Indonesia’s Central Bank to Raise Reserve Requirement Ratio by 9%

The Reserve Requirement Ratio or Cash Reserve Ratio is the representation of reversible liabilities that must obtain instead of using it for issuing loans. The ratio can be measured by dividing the current cash reserve of a banking enterprise by the number of bank deposits that it holds. In most cases, the RRR is a limit that is set by a Central Banking authority.

In the case of Indonesia, Bank Indonesia sets that standard for all the regional banks operating under its jurisdiction. According to media reports published in Bloomberg and Reuters, the BI has decided to hike the RRR by 9%. Financial experts postulate that in doing so, the central banking authority of the Southeast Asian country is planning to discourage the lending process.

Bank Indonesia Introduces New Monetary Policies

BI Governor Perry Warjiyo recently elaborated on the intention and goals of the new monetary policies of the Central Bank during a press conference. He claimed that BI is planning to ensure the regional banks operating under its jurisdiction are now liable to maintain a 7.5% to 9% of their cash reserves from July to September this year.

The amount of time makes for the third quarter of the financial year for the Indonesian economy. Recently, the government of Indonesia has made some other important decisions about its biggest trade option, like palm oil exports.

As the largest contributor to palm oil production in the world, Indonesia has decided to lift the ban on exports and other related products. Indonesian President Joko Widodo recently stepped forward to revoke a three week-long ban on palm oil.

Several economists from the USA have postulated worries around upcoming inflation and recession period. On the other hand, the situation around the Russia and Ukraine war has taken out a major oil supplier from the international markets creating an artificial shortage.

The prices of the fuel are connected to the lifeline of every country, which in turn generates a massive CPI increase.

BI policies have made up for the repurchase rate keeping it relatively stable at 3.5% during the last seven days. At the same time, the current RRR requirement is visibly more aggressive in comparison to the 6.5% quote allotment projections from earlier statements.

Bloomberg market analysts suggest that the BI is attempting to drain the additional liquidity from the market while keeping the economic integrity intact. At the same time, the bank has decided to keep the bench market interest rates the same as before.

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