Program Akuntasi Universitas Trisakti

1. Program Akuntasi UniversitasTrisakti Monetary Policy in Indonesia

2. Framework of monetary policy in Indonesia Operational target Strategic target Ultimate target Instruments Operational target Intermediate target - OMO - Interest rates (ST) - Interest rates (LT) - Inflation - Reserve requirement - Base money - M1, M2, kredit (since Act # 23/1999) - Discount window - Interest rates - Moral suasion (BI rate) Nominal “Anchor” • - Exchange rate • Monetary variables • Inflation (inflation targeting) • Nominal output • No explicit nominal anchor Targets

3. Framework of monetary policy in Indonesia Kebijakan Moneter dengan Sasaran Tunggal Sejalan dengan trend di berbagai negara, Indonesia menganut stabilisasi harga sebagai sasaran tunggal kebijakan moneter sebagaimana tercermin dalam Undang-Undang Bank Indonesia yang baru (UU No. 23 tahun 1999 tentang Bank Indonesia – diamandemen UU No. 3 tahun 2004). TujuanBank Indonesia adalah: “Mencapai dan memelihara kestabilan nilai rupiah”(Ps. 7) 3 Pilar pencapaian tujuan Untuk mencapai tujuan tersebut, Bank Indonesia mempunyai tugas: (Ps. 8) a. Menetapkan dan melaksanakan kebijakan moneter b. Mengatur dan menjaga kelancaran sistem pembayaran c. Mangatur dan mengawasi Bank

4. Framework of monetary policy in Indonesia Beberapa rezim berkembang dalam teori dengan mendasarkan pada berbagai channels dalam transmisi moneter dalam perekonomian : 1. Monetary targeting; mendasarkan pada pengendalian uang beredar (sbg. Intermediate target) dan uang primer (sebagai sasaran operasional) untuk mencapai sasaran akhir, dengan berdasar kestabilan permintaan uang- sudah dihapuskan sejak Juli 2005. 2. Exchange rate targeting; mendasarkan pada pengendalian nilai tukar (sbg intermediate target) untuk mencapai sasaran akhir (inflasi dan pertumbuhan) 3. Inflation targeting; memfokuskan sasaran akhir pada target inflasi yang diumumkan. Untuk intermediate targetnya menggunakan inflation forecast, yang mendasarkan pada semua channel transmisi moneter. Biasanya dikombinasikan dengan suku bunga untuk penentuan operating targetnya. 4. Implicit Nominal Anchor (No Anchor). Tidak menetapkan sasaran akhir dan intermediate tertentu. Tergantung penilaian dan keyakinan boards of governor. Untuk operating target biasanya menggunakan suku bunga.  Rezim mana yang tepat tergantung pada kondisi ekonomi dan moneter negara ybs. Bahkan untuk suatu negara rezim yang diterapkan dapat saja berubah.

5. Transmission mechanism of monetary operations SBI Auction Interest Rate Domestic Supply OMO FASBI Domestic Inflation Pressures FX Intervention Asset Price Domestic Demand Money Market Liquidity INFLATION Expectation & Confidence Discount Window Foreign Inflation Pressures Exchange Rate RR Moral Suasion Indicators : - Import Price Index Indicators : - M1, M2 - Bank’s Loan • Indicators : • - CPI • - Underlying • Core • - Asset Price • - Other Price • Adm/Non • Trade/Non • Food/Non • Indicative Targets: • Bank reserves Indicators: - Money Market Rates - Deposit Rates - Lending Rates - IHSG - Exchange Rates Indicators: - Surveys - Leadings - Output Gap

6. Monetary transmission through pricing approach Market interest rates Domestic demand Domestic Inflationary pressure Asset prices Total demand Official Rate (BI rate) Net external demand Inflation Expectations/ confidence Import prices Exchange rate

7. Monetary Programming • Supply of money : Ms = mm * Mo • Demand for money : Md = f (GDP, CPI) • Illustration: • Long- term demand for money function (M1): • logM1 = constant + 1.1 logGDPr + 1.0 logCPI + error • Estimated money multiplier (M1/M0) around 1.2 – 1.4 • Monetary Program: (Ms = Md) • Inflation 8% • GDP growth 6% • Growth of M1 14.6 % • Growth of base money (Mo) 10.4% – 12.2% avg 11.2%  interest rate target

8. Inflation Targeting in Indonesia • Sesuai UU No.3/1999 dan UUNo.3/2004 • Inflasi merupakan “single target” dari kebijakan moneter • BI memiliki independensi secara kelembagaan (institutional independent), dan dalam memilih instrumen (instrument independent), sementara sasaran inflasi diumumkan oleh pemerintah setelah berkoordinasi dengan BI • Larangan pemberian kredit kepada pemerintah (menghindari fiscal dominance) • Kebijakan moneter “forward-looking” • Sasaran inflasi ditetapkan akhir tahun sebelumnya atau awal tahun berjalan • Sasaran moneter diarahkan untuk mencapai target inflasi • BI menggunakan model dalam melakukan forecast inflasi dan makroekonomi lainnya: • MODBI: a large scale structural macroeconomic model • SOFIE: a medium scale structural macroeconomic model (ECM) • GEMBI: a dynamic general equilibium macroeconomic model • SSM: a small scale structural macroeconomic model • BEER: a behavioral equilibrium exchange rate model • Indicator models: reduced forms, VAR for specific issues

9. Inflation Targeting“A Framework, Not A Rule” Monetary operations Policy response Policy Indicators Ultimate target Monetary instruments BI Rate Inflation forecast Inflation target + • Liquidity management • Interest rates corridor • Interest rate sstructure • Public welfare • Trade off between inflation & output Inflasi dan Output • Expectation • Exchange rate stability • Other monetary and banking objectives Output growth • Factors affecting inflation • Linkage among macroecon variables • Monetary trasmission moneter + Coordination with Government Model, research, stat, expert opinion, judgement Policy Credibility • Policy communication • Commitment/Consistency • Building expectation

10. Balance sheets of Monetary Authorityand Monetary System (Monetary survey)

11. PerbandinganSistemOperasiKebijakanMoneter PENDEKATAN SISTEM OPERASI Sasaran akhir Sasaran operasional Instrumen Pendekatan Harga Variabel-variabel Informasi • Langsung • Sk.bunga PUAB • Stabilitas harga • Tidak langsung Sasaran Sasaran Sasaran Pendekatan Kuantitas Instrumen Operasional Antara Akhir Langsung - Agregat moneter Stabilitas harga - - Monetary base Pertumbuhan ekonomi - Tidak langsung seperti: seperti: Kesempatan kerja . Uang primer/M0 . M1, M2 Keseimbangan NP . Reserve bank . Kredit pbk . Sk.bunga Sumber: Junggun Oh. “Inflation Targeting, Monetary Transmission Mechanism, and Policy Rules in Korea”, Economic Pap er , Vol.2, No.1, March 1999, Bank of Korea (dimodifikasi).

12. Ms’ Ms* Ms” “ Tingkat Bunga, i Tingkat Bunga, i Ms i” i” i* i* Target Tingkat Bunga, i* Md” i’ Md” i’ Md* Md* Md’ Md’ M’ M* M* M” Kuantitas Uang, M Kuantitas Uang, M PerbandinganSistemOperasiKebijakanMoneter Mekanisme Quantity-based Approach vs Price-based Approach Sasaran kuantitas uang Sasaran “harga” uang

13. Pertimbangan BI Beralih ke Pendekatan Harga Quantity-based Approach vs Price-based Approach ? • Bank Indonesia mengubah sistem pengendalian moneternya dari quantity-based approach menjadi price-based approach sejak Juli 2005, sejalan dengan penerapan full-fledged inflation targeting framework Asumsi yang digunakan dalam Pendekatan Kuantitas adalah sbb: • Kebijakan dan perkembangan sektor-sektor lain (fiskal, nilai tukar, dan riil) akan berjalan seperti yang ditetapkan. • Adanya hubungan yang stabil antara uang beredar (sebagai sasaran antara) dengan kegiatan ekonomi riil (sebagai sasaran akhir)  stabilitas fungsional income velocity dan demand for money • Adanya hubungan yang stabil antara uang primer (sebagai sasaran operasional) dengan uang beredar (sebagai sasaran antara)  stabilitas fungsional angka pengganda uang (money multiplier)

14. Pertimbangan BI BeralihkePendekatanHarga Quantity-based Approach vs Price-based Approach ? • Namun, hasil kajian empiris BI menyimpulkan bahwa: • Income velocity, demand for money, dan money multiplier cenderung “kurang” stabil. • M0 tidak dapat sepenuhnya dikendalikan oleh Bank Indonesia. Sekitar 70% komponen M0 adalah uang kartal yang merupakan kebutuhan masyarakat akan alat pembayaran. • Agregat moneter M1 relatif stabil dibandingkan dengan M2. Penyebab Ketidakstabilan Struktural tersebut adalah karena: • Pesatnya perkembangan sektor keuangan dan majunya inovasi produk keuangan yang menyebabkan kegiatan penciptaan uang (money creation) oleh sistem keuangan menjadi berlipat ganda. • Terjadinya proses decoupling antara sektor moneter dan sektor riil. • Sulitnya mengidentifikasi arah kausalitas antara uang beredar dan kegiatan ekonomi. Adanya kecenderungan kegiatan ekonomi mempengaruhi uang beredar, bukan sebaliknya.

15. Pertimbangan BI BeralihkePendekatanHarga Quantity-based Approach vs Price-based Approach ? • Sejalan dengan permasalahan dalam pengendalian moneter dengan menggunakan agregat moneter, paradigma baru yang lebih meyakini “harga” uang, yaitu suku bunga dan nilai tukar, sebagai jalur utama transmisi kebijakan moneter (price targeting) di Indonesia semakin mendapatkan perhatian. • Bond (1994) menunjukkan secara empiris bahwa hubungan antara suku bunga dengan laju inflasi jauh lebih kuat dibandingkan dengan hubungan antara uang beredar dengan inflasi. • Di sisi lain, dalam ekonomi yang semakin terbuka dengan sistem nilai tukar yang fleksibel, pergerakan nilai tukar rupiah juga dianggap sangat penting dalam mempengaruhi permintaan agregat, pertumbuhan ekonomi, and inflasi.

16. How open market operations change monetary conditions? i Selling securities Rb M1 & M2 Price Stability Securities auction i Buying securities Rb M1 & M2 Monetary operations • Day-to-day monetary operations mostly conducted through open market operations (OMO), while other instruments such as reserve requirement and moral suasion are rarely used. • Bank Indonesia sets indicative targets either base money or interest rates (BI rates since July 2005) and conducting OMO by auctioning Bank Indonesia Certificates (SBI) and Government Securities (SUN), intervening in the FX market and open window for deposits facility. • BI rate reflects the stance of monetary policy, that is the level of short-term interest rate BI wishes to maintain in order to achieve inflation target. Changes in BI rate in multiple of 25 bp.

17. Operational mechanism SBI auction Contraction FASBI/SWBI OMO Reguler Reverse Repo SUN*) Expansion SBI/SUN Repo OMO Fine Tune Contraction (FTK), Outright sale SUN Contraction Sterilisation/Intervention (sale USD/IDR) OMO Non Reguler/ Fine Tune Operation Fine TuneExpansion (FTE), Outright Buy SUN Expansion Sterilisation/Intervention (buy USD/IDR)

18. Open market operations • Open market operations • 1. Auctions of SBIs and or SUN • 2. Deposit facility (FASBI) • 3. FX sterilization/intervention • 1. SBIs and SUN auction • Based on liquidity forecast, BI sets auction target (in volume) and announce to the market every Tuesday. Conducts weekly (every Wednesday) auction of SBIs, and occationally (non reguler) auction of SUN • Auction SBI-1 month every week, and SBI-3 month once a month • On a daily basis, BI closely oversees market liquidity by forecasting sources and uses of liquidity of commercial banks, in particular the movement of government accounts, changes in foreign reserves, and market condition

19. Open market operations • Open market operations • Auctions of SBIs and or SUN • Deposit facility (FASBI) • FX sterilization/intervention • 2. Bank Indonesia deposits facility (FASBI) • On day-to-day, BI provides window facility for banks to deposit their liquidity with maturity o/n to one a week, aiming at smoothing the fluctuation of interbank money market rates. • FASBI rate o/n : BI rate – 500 bps 7 days: (discontinued since 2006) • BI also offers repurchase agreement (repos) on SBI and repos/reverse repos for SUN

20. Open market operations • Open market operations • Auctions of SBIs and or SUN • Deposit facility (FASBI) • FX sterilization/intervention • 3. Foreign exchange sterilization or intervention • As the cashier for the government financial transactions, BI provides FX for the government FX transactions, such as, payments of matured foreign debt, supply of FX for Pertamina originated from budget subsidy. • For managing liquidity in the domestic money market while smoothing the fluctuation of Rp exchange rate, BI occationally engages in selling (or buying?) FX (foreign reserves). This action is called intervention or sterilization.

21. SBI FASBI SWBI SBI Repo * FTO Reverse SUN Outright Repo ** Impact Contraction Contraction Contraction Expansion Contraction/ Contraction Contraction/ Reguler Reguler Reguler Reguler Expansion Reguler Expansion Non reguler Non reguler Tenor 1 month o/n 7 days o/n o/n – < 3 month - 3 month 7 days 14 days 14 days Rp 1.000 Rp 1.000 Rp 500 Max. 25% Rp 1.000 Rp 1.000 Rp 1.000 Units mio mio mio o/s SBI mio mio mio bank Increment Rp 100 Rp 100 Rp 50 Rp 100 mio Rp 100 mio Rp 100 mio mio mio mio Mechanism Auction Non Non Non Auction/ Auction/ Auction/ auction auction auction Non-auction Non-auction Non-auction Auction Pre - PUAS PUAB o/n Auction/ Auction/ - Interest rate result determined / pre- Pre- SBI+200bp determined determined Participants Bank, Bank, Bank/un it Bank Bank Bank, Bank, broker broker syariah broker broker * ) Characteristics of instruments *)

22. Reverse Repo SUN • T+0 • Banks offer quantity and bid rate (reverse repo rate) during window time • Settlementfirst leg T+1 • BI debitsbank’s account equal the amount won • BI credit bank’s security (SUN) account BANK INDONESIA Announcement Auction RR-SUN (T-1) BANKS • Second leg (RR-SUN at maturity) • Bankssell back SUN • BI credit bank’s account at the amount settled at the first leg + reverse repo rate • BI debit bank’s SUN account