Increase in Foreign Currency Reserve Requirements for Commercial Banks

Bank Indonesia Regulation No. 13/10/PBI/2011 on the Amendment of Bank Indonesia Regulation No. 12/19/PBI/2010 on Rupiah and Foreign Currency Statutory Reserve Requirements (Giro Wajib Minimum / GWM) for Commercial Banks (‘Regulation’) has been issued recently. The Regulation aims to reduce the instability of foreign exchange risk and to maintain macroeconomic stability, considering that the recent increase in capital inflows significantly increased foreign currency liquidity.

Bank Indonesia will require foreign currency reserves of 8% (up from a previous 1%). This requirement will be implemented in two stages: 5% from 1 March 2011 to 31 May 2011 and 8% starting from 1 June 2011 (Article I (1) amending Articles 4 (1) and (2)).

Failing to fulfill the foreign currency GWM will be subject to penalty in the amount of 0.04% for each working day calculated based on the difference between the foreign currency GWM stipulated in Foreign Currency Reserve Account of Bank Indonesia and the Foreign Currency Reserve Account recorded in the accounting system of Bank Indonesia. The penalty will be payable in IDR by using the average exchange rate of Bank Indonesia on the day of breach (Article I amending Articles 18 (2) and (3)).

For a brief overview of Bank Indonesia Regulation No. 12/19/PBI/2010 on Rupiah and Foreign Currency Statutory Reserve Requirements for Commercial Banks see ILB Number 1518 14 October 2010.

The Regulation has been in force since 9 February 2011.