BI mulls accumulating global sukuk as syariah buffer

JAKARTA: Bank Indonesia (BI) is weighing the use of sukuk issued by other countries in its monetary operations as demand for syariah-compliant securities surge among lenders in the world’s largest Muslim-majority country.

The central bank is discussing whether to add more foreign sovereign sukuk to its reserves to be used as an underlying asset for Sukbi, a monetary instrument for liquidity operations, according to deputy governor Dody Budi Waluyo.

Bank Indonesia’s efforts to deepen the financial market and ensure stability are hampered by inadequate syariah securities at its disposal, he said.

Bank Indonesia is increasingly relying on its money market operations to ensure liquidity for banks after raising rates by a total of 175 points since May to counter a selloff in its currency triggered by rising US interest rates.

With the risks of a prolonged US-China trade war lingering, the central bank has been intervening in the currency and bonds market to quell volatility.

The central bank began offering a sovereign sukuk-backed securities, known as Sukbi, to conventional and syariah banks from last year and the instrument has found favour with the banks. The bank sold 4 trillion rupiah of 7- and 14-day tenures in its latest auction on Feb 13.

The purchase of foreign global sukuk would be limited to top rated securities, said Nanang Hendarsah, executive director for monetary management at Bank Indonesia.

“We have some in our foreign reserves and we are waiting for an endorsement from the National Shariah Board” to approve the plan to use them as underlying assets in Sukbi. — Bloomberg

Banking , Indonesia