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Crisis in Asia's Currency Markets: Indonesia Moves to Tame Speculative Capital Flows
by Kavaljit Singh
On
1. To make short-term investments less attractive, there will be a one-month minimum holding period on Sertifikat Bank
2. The central bank will increase the maturity range of its debt instruments by issuing longer dated SBIs (9-month and 12-month) to encourage investors to park their money for longer periods. So far, the longest maturity of its debt was six months.
3. New regulations have been introduced on banks’ net foreign exchange open positions.
4. The central bank has also widened the short-term, overnight money market interest rate corridor and introduced non-securities monetary instrument in the form of terms deposits.
These new curbs are in response to growing concerns in
Given the historically low levels of interest rates in most developed countries,
Its relatively better economic performance has attracted large capital inflows in the form of portfolio investments since early 2009. Consequently,
Because of massive speculative capital inflows, the Indonesian authorities were concerned that its economy could be destabilized if foreign investors decide to pull their money out quickly. Therefore, it was very much anticipated that the central bank will undertake corrective steps to maintain financial stability. As a balancing act, the authorities have avoided any restrictions on long-term investment flows.
Analysts believe that these policy measures may deter hot money inflows into the country and monetary policy may become more effective. However, they expect tougher measures in the future if volatility in capital flows persists.
Some analysts also expect that the new curbs may shift capital flows to other financial assets such as government and corporate bonds.
As mentioned earlier,
The policy pronouncements by
Will G-20 take a collective call on capital controls?
Will the
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