BI to hold Regular Forex Swap Auction

TEMPO.CO, Jakarta - Bank Indonesia (BI) plans to auction foreign exchange swaps every week. A forex swap is a a simultaneous sale and purchase of identical amounts of one currency for another with two different value dates (normally spot to forward). BI Deputy Governor Perry Warjiyo said the auction is BI's way reducing foreign pressure on the rupiah. The auction is also expected to strengthen the central bank's monetary operations in managing the market liquidity of the forex and the rupiah.

Forex swaps allow the sums of a certain currency to be used to fund charges designated in another currency without acquiring foreign exchange risk. According to Perry, the auction will be done on a regular basis so that the forex swap can be used as hedging by investors.

"We will auction the forex swap on every Thursday," Perry said in Jakarta, Saturday, July 21.

Perry said the auction is expected to further strengthen the stability of the rupiah, control inflation, and maintain the stability of the financial system as a whole. Previously, BI had done similar efforts by raising its benchmark interest rate (BI Rate) and the interest rate of its deposit (FSBI). The efforts are believed to be enough to lessen the impact of fuel price hike on inflation.

"Inflation is back to normal and will be stable again by September 2013."

On the first auction, the 1-month, 3-month and 6-month FX swaps were oversubscribed by 2.5 times. Of the US$500 million auction target, the number of bid reached $1.24 billion.

LINDA HAIRANI | MARTHA THERTINA | SETIAWAN