BI plans issuing dollar term deposits

Bank Indonesia (BI)  Indonesia's central bank, moved to stem its sliding currency on Tuesday, as the rupiah tumbled 2.5 percent to its lowest since 2009.

BI plans to release term deposit facility for US dollar to overcome the scarcity of foreign exchange that has been pressing rupiah exchange rate. This instrument uses an auction system so that the placement of US dollar funds can only be done at certain times.

The central bank promises an attractive interest rate so bank will place the excess liquidity of the foreign exchange. Bank Indonesia also allows early redemption and will not entitled with risk-weighted assets (ATMR).

The funds will be distributed to the banks that need foreign currency liquidity, with a swap or loan mechanism.

Selling of Indonesian stocks, bonds and the rupiah currency has intensified in recent weeks in line with other Asian assets as Europe's deepening debt crisis and cooling global growth prompt investors to head for the exits.

Foreigners have sold a net $650 million of Indonesian shares this month, taking their total investments in 2012 down to just around $300 million. They also sold a net 4.2 trillion rupiah ($452 million) of Indonesian government bonds this month.

But domestic factors may also be creating a downdraft for the rupiah, with some investors discouraged by slow progress on economic reforms, potential restrictions on the mining sector and the inability of the government to tackle its swelling subsidy bills.