ECONOMICS HIGHLIGHT: Indonesia: Tightens rules on bank foreign exchange holdings

Indonesia said it will tighten rules on banks’ foreign-exchange holdings and overseas borrowing to cope with capital inflows that have pushed up inflation and strengthened the rupiah this year. Bank Indonesia will also
reintroduce a 30% cap on lenders’ short-term overseas borrowing to minimize the risk of sudden capital outflows, it said. Banks must set aside 5% of their total foreign-exchange holdings as reserves as of March 2011, from 1% currently, Deputy Governor Budi Mulya said. The reserve requirement will rise to 8% effective June. (Bloomberg)