Indonesia's reserve requirement cut from 7.5% to 6.5%

It will free up $2.5 billion of banks' mandatory deposit reserves.

On 18 February, Bank Indonesia (BI), the country’s central bank, reduced the reserve requirement on rupiahdenominated deposits by one percentage point to 6.5% from 7.5%, effective 16 March.

Moody's Investors Service notes that a lower reserve requirement ratio is credit positive for Indonesia’s banks because we estimate that it will free up IDR34 trillion ($2.5 billion) of mandatory deposit reserves on bank balance sheets that they currently deposit with BI. These released funds will ease system liquidity and reduce deposit competition, thus reducing banks’ funding costs.

"BI’s reserve requirement cut followed a 50-basis-point reduction in November 2015. In addition, BI also lowered its three key rates by 25 basis points – its policy rate to 7%, the benchmark deposit rate to 5%, and the benchmark lending rate to 7.5% – the second rate cut this year following a 25-basis-point reduction on 14 January."

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