Bank of Indonesia Signs $10b Financial Stability Deal With Singapore
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The central banks of Indonesia and Singapore said last week that they had agreed to a bilateral deal for a $10 billion backstop to help maintain monetary and financial stability after a recent bout of turbulence in markets. The pact, which will be in place for one year, comprises a local currency swap agreement of around $7 billion equivalent and another $3 billion that allows for repurchase transactions between the two central banks to obtain United States dollar cash using government bonds of major countries as collateral.
Bank Indonesia has been recently intervening to stabilize its rupiah, which fell to 20-year lows against the US dollar amid a global rout in emerging markets.
“Economic fundamentals in the regional economies remain sound. But markets can sometimes overreact in the face of heightened uncertainty. This bilateral financial arrangement will instill confidence amongst investors,” said Ravi Menon, managing director of the Monetary Authority of Singapore.
Questions & Answers
Q.What is the total value of the financial stability deal between Indonesia and Singapore?
What is the total value of the financial stability deal between Indonesia and Singapore?
The agreement between the two central banks is worth a total of $10 billion. This financial backstop is intended to help maintain monetary and financial stability in the region.
Q.What specific components make up this financial stability deal?
What specific components make up this financial stability deal?
The deal comprises a local currency swap agreement equivalent to approximately $7 billion. Also, there is a $3 billion facility allowing repurchase transactions for US dollar cash using government bonds as collateral.
Q.Why has this financial arrangement been put in place?
Why has this financial arrangement been put in place?
Bank Indonesia has recently intervened to stabilise its rupiah, which fell to 20-year lows against the US dollar. The arrangement aims to instill confidence among investors during periods of market turbulence.
Q.How long will this financial agreement be in effect?
How long will this financial agreement be in effect?
The bilateral pact between the central banks of Indonesia and Singapore is set to be in place for a period of one year. It acts as a backstop to support regional economic stability.
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