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Types of Reserve Requirement - Giro Wajib Minimum - in Indonesia

Reserves Requirement or Giro Wajib Minumum (GWM) are minimum funds or deposits that must be maintained by banks in the form of checking account balances placed at Bank Indonesia (BI).

Citing the site's attitude from Financial Service Authority or OJK bank.ojk.go.id page, the number of Reserve Requirement is determined by the central bank based on the percentage of third party funds collected by banks. Indeed, the Reserve Requirement is a monetary or macroprudential instrument to regulate the money supply in the community, which directly affects the inflation index.

Read also: BI Refines Rules of Reserve Requirement for Rupiah and Foreign Exchange, Effective August 1

According to central bank data, in Indonesia, three types of RR policies are implemented as instruments for monetary policy and macroprudential policy.

The three types of Reserve Requirement are as follows:

Primary Reserve Requirement

Primary Reserve Requirement is a tool to expand or increase bank liquidity if it is lowered. On the other hand, to put a brake on bank lending if it is increased or reduces bank liquidity.

Read also: Minimum Reserve RequirementReserve Requirement Regulations Make it Easy for Banks to Regulate Liquidity The Reserve RequirementReserve Requirement policy is intended to affect liquidity so that it can affect interest rates and bank lending capacity.

Secondary Reserve Requirement

Reserve Requirement Secondary Reserve RequirementReserve Requirement is the minimum reserve (rupiah) that banks must maintain in the form of securities, such as Bank Indonesia Certificates, Bank Indonesia Certificates of Deposit, and Government Securities). The secondary reserve requirement is determined in the ratio of third party funds. The secondary reserve requirement is aimed at influencing bank liquidity reserves and deepening the financial sector. If it is increased, the aim is to reduce the credit capacity of banks.

On the other hand, if it is lowered, the objective is to increase its credit capacity.

Reserve Requirement Loan to Funding Ratio (LFR)

Reserve RequirementReserve Requirement based on the ratio of credit to all bank funds or LFR is the minimum rupiah deposit that a bank must maintain in a checking account at the central bank at a certain percentage calculated based on the difference between the realization of the bank's LFR and the target LFR determined by BI.

The purpose of the Reserve RequirementReserve Requirement-LFR is to encourage bank lending to remain within the specified range to promote intermediation so that economic growth is accelerated while maintaining the principle of prudence.

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