Perry Warjiyo0:00
So those are the five steps for follow-up measures to strengthen the rupiah exchange rate. Again, we conduct weekly evaluations of the implementation of policies decided in the monthly meeting. Because of that, since there was a rupiah weakening that exceeded our projection, we took follow-up steps for rupiah exchange rate stabilization. What were they? First, the BI rate was raised by 25 basis points to 5.5%, which increases its attractiveness. Second, the SRBI rate was also raised to increase its attractiveness. Third, for hedging, we made it cheaper with a reduction of about 10%. Why 10%? It is comparable to one of the obligations of foreign investors to pay taxes. Okay, thank you, media colleagues. The Governor will explain today's Board of Directors meeting decision.
One thing I must explain first is that, in accordance with the law and current practice, policy decisions are made at the last monthly Board meeting, which was on May 19-20. At that time, we raised the BI rate by 50 basis points. Remember that. Now, when making that decision, there were projections. Every week, every Tuesday, we evaluate how the implementation is going, whether the projections are on track or not. In various evaluations today, we see that the rupiah weakening has exceeded our earlier projection. Therefore, the title today is 'Follow-up Policy Measures for Strengthening Rupiah Exchange Rate Stability.' There are five points we decided today.
First, raising the BI rate to 5.5%, a 25 basis point increase, so that the rupiah becomes more stable and strengthens, and of course, to keep the inflation projection for this year and next year at 2.5% plus or minus 1%, as previously stated. This rate increase also aims to attract foreign portfolio investment inflows. Because since April and May, SRBI has seen inflows. In June, government bonds and stocks also saw inflows. However, SRBI saw outflows. Sorry, SRBI outflows. So we need to raise the rate to strengthen and stabilize the rupiah and keep next year's inflation within target.
Second, besides the BI rate, we also adjusted the SRBI instrument upwards to attract inflows. Because one cause of rupiah weakening is outflows in investment. With the increase in BI and SRBI rates, inflows are expected to rise again and support rupiah strengthening. That's number two. Third, providing incentives for hedging swaps. Foreign investors who come in to buy government bonds, stocks, or SRBI can use this as an underlying asset. They can go to banks. Currently, there is something called a hedging swap for hedging. They bring it to the bank, and the bank can pass it on to BI. It's called an incentive, providing an incentive for hedging swaps. We set the amount at 10%.
So the swap price for this hedging swap is 10% cheaper than the regular swap price. We have a regular swap price. A swap is an exchange from foreign exchange to rupiah to cover hedging. That was number three. Number three is providing a 10% incentive for hedging swaps, which also strengthens attractiveness. The attractiveness is not only from the higher interest rate, but also the price for hedging is cheaper, which also reduces some other costs or obligations for foreign investors to hedge. And this is number three.
What is number four? That is reactivating the auction window for repurchase agreements to meet rupiah liquidity needs for the money market and banking sector. So, to meet liquidity needs, banks can bring their government bonds or SRBI to BI, and we can provide what is called a repurchase agreement, like a pawn. The tenors are extended to 3 months, 6 months, 9 months, and 12 months. So for 3, 6, 9, and 12-month needs, banks can use securities like government bonds or SRBI in what we call a repurchase agreement transaction. This way, our monetary liquidity expansion, which has been done partly through purchasing government bonds from the market, can be supplemented. So with this repo, the need to buy government bonds can be reduced.
The fifth is increasing the intensity of foreign exchange and monetary operations, as I mentioned earlier, both through foreign exchange intervention and rupiah operations via SWI auctions twice a week. So those are the five steps for follow-up measures to strengthen the rupiah exchange rate. Again, we conduct weekly evaluations of the implementation of policies decided in the monthly meeting. Because of that, since there was a rupiah weakening that exceeded our projection, we took follow-up steps for rupiah exchange rate stabilization. What were they? First, the BI rate was raised by 25 basis points to 5.5%, which increases its attractiveness. Second, the SRBI rate was also raised to increase its attractiveness. Third, for hedging, we made it cheaper with a reduction of about 10%. Why 10%? It is comparable to one of the obligations of foreign investors to pay taxes.
If foreign investors buy government bonds or stocks in Indonesia, they are subject to an average tax of about 10%, among other obligations. So this is more competitive. Then, number four is for the adequacy of money market and domestic banking liquidity, we reactivated the weekly auction for repurchase agreements. Banks can come and use underlying assets for their liquidity needs. Number five, the intensity of rupiah and foreign exchange monetary operations, as I said. Thank you. There might be a question about whether Indonesia's foreign exchange reserves are no longer sufficient. Let me explain. BI always measures how much foreign exchange reserve is sufficient. There is an indicator issued by the IMF called the Assessing Reserve Adequacy. We measure that, which is essentially how much reserve is needed to cover rupiah weakening. We measure that, and currently, it is still more than 115%, so it is still more than sufficient.
