Bank Indonesia expands hedging incentives to support rupiah

Bank Indonesia (BI) is stepping up currency-market intervention and expanding hedging incentives to stabilise the rupiah amid global pressures and a stronger US dollar, Governor Destry Damayanti said.

For domestic non-deliverable forward (DNDF) hedges with BI linked to overseas funding, the central bank is raising the six-month premium reduction from 25 per cent to 40 per cent. The reduction for 12-month contracts is increasing from 30 per cent to 45 per cent. Eligible underlying funding includes portfolio inflows, foreign borrowing by banks and foreign direct investment.

Destry said BI’s intervention strategy covers non-deliverable forwards in offshore markets, alongside spot transactions and DNDF contracts in the domestic market.

BI is also maintaining incentives for conventional buy-side hedging swaps with the central bank that are backed by overseas funding. Premium reductions are set at 15 per cent for three-month contracts, 20 per cent for six-month contracts and 25 per cent for 12-month contracts.

Separately, Destry said incentives would continue for Local Currency Transaction arrangements with partner countries. For international trade and investment transactions, these include a 10 per cent premium addition for conventional sell-side hedging swaps with BI and a 10 per cent premium reduction for DNDF hedges with BI.

The hedging measures are intended to help market participants manage exchange-rate risks and support foreign funding flows into domestic financial markets. The local-currency arrangements aim to diversify currencies used in international trade and investment, reducing reliance on the US dollar.