June 6, 2018 / 7:49 AM / 9 months ago

UPDATE 2-Indonesia c.bank has no FX curbs in mind, but rates may rise

* C.bank gov: not thinking to recommend capital control measures

* Markets with sound policies should have option to manage capital flow

* Bankers say capital flow rules should be considered during normal times

* Further rate hikes possible but “will not go crazy” on raising rates (Adds bankers comments in parliamentary hearing)

By Gayatri Suroyo and Ed Davies

JAKARTA, June 6 (Reuters) - Indonesia’s central bank has no plan to implement capital controls to support the rupiah during periods of global market volatility, its governor Perry Warjiyo said on Wednesday.

“Bank Indonesia (BI) has no plans, not even thinking to recommend any capital control measures,” Warjiyo, who was sworn in as governor late last month, told a media gathering in response to a question about the possibility of such measures.

Alongside other emerging markets, Indonesia has seen an outflow of funds as U.S. assets become more attractive due to rising interest rates.

The rupiah currency has been among the worst performing in the region while Indonesia’s main stock index slumped and yields on its sovereign bonds rose across the board. Its markets have since pared some losses with investors returning to buy bonds while the rupiah has strengthened.

BI raised its benchmark interest rate for the second time in two weeks at an out-of-cycle policy meeting on May 30, after hiking rates earlier that month.

On Wednesday, Warjiyo reiterated the possibility of a further rate hike, adding that the central bank “will not go crazy” on raising rates and that it would be done in a measured way. In total, BI has raised its key rate by 50 basis points in May, bringing it to 4.75 percent

Warjiyo said emerging markets with sound economic policies should have the option to manage capital flows as part of the country’s macroeconomic policies.

He noted institutional views and guidance by the International Monetary Fund (IMF) on capital flow management that he said he contributed to in 2011-2013.

“This should not be a substitute for macro policies but capital flows management can be done if an emerging market has applied fiscal discipline and prudent monetary policy,” Warjiyo said.

Such measures, if taken, should be targeted and have a specific time period, he said.


Markets have been debating the possibility that the authorities could implement some form of capital control to make it harder for portfolio investors to leave Indonesian markets.

In a parliamentary hearing with executives of Indonesia’s biggest banks to discuss lenders’ preparations for Eid al-Fitr this month, top bankers suggested the authorities make some changes to the current regime of free flow of capital.

“With Indonesia’s position now, it is time for us to review the rules on capital movement and have some control. Don’t do it now because it could be seen as a panic move during volatile times, but prepare for it during normal situation,” Kartika Wirjoatmodjo, chief executive of Bank Mandiri, the country’s second-biggest bank, told parliamentarians.

He noted some countries have a tax on outgoing portfolio funds.

Tigor Siahaan, chief executive of Bank CIMB Niaga, said such measures could be considered, but it “shouldn’t be seen as excessive capital controls”.

Emerging markets around the world saw a combined $12.3 billion of outflows in bonds and stocks last month, according to data from the Institute of International Finance.

The central bank is also in talks with China to extend its bilateral swap agreement, which could be utilised to support the rupiah, if needed, the governor said. (Additional reporting by Maikel Jefriando Editing by Jacqueline Wong)

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