Reserve Management and FX Intervention
5 Pages Posted: 13 Dec 2019
Date Written: October 31, 2019
Bank Indonesia’s main aim is to safeguard the stability of the rupiah. To this end, the Bank maintains foreign reserves that are sufficient in amount to achieve this monetary policy objective and also to meet international foreign currency obligations. Reserves are accumulated mainly from traditional sources, such as capital inflows, foreign bond issuance and government export proceeds. Like most central banks, Bank Indonesia applies the principles of security, liquidity and profitability in pursuing its reserves investment objectives. The Bank has recently implemented a new investment and diversification strategy for its reserves. In terms of investment strategy, the Bank has recently started to apply a currency immunisation approach, which aims to match the reserves currency allocation to the composition of the country’s liabilities and therefore mitigate the currency risk in the reserves portfolio. Furthermore, the Bank’s reserves management style has evolved from a traditional model into a more sophisticated multi-asset and multicurrency approach, optimising the balance between the need for reserve accumulation and the cost of holding these reserves.
Full Publication: Reserve Management and FX Intervention
Keywords: central bank policy; monetary operation; adequate foreign reserves; reserves management; currency immunisation approach; diversification strategy
JEL Classification: E58
Suggested Citation: Suggested Citation