SINGAPORE: The central banks of Singapore and Indonesia on Monday (Nov 5) signed agreements to set up a US$10 billion (S$13.8 billion) bilateral financial arrangement.
It will enable the two sides to access foreign currency liquidity from each other, if needed, to preserve monetary and financial stability, said the Monetary Authority of Singapore (MAS) and Bank Indonesia in a joint media release.
The bilateral financial arrangement, which will be in place for a year, was first announced last month by Indonesian President Joko Widodo and Singapore Prime Minister Lee Hsien Loong during their Leaders' Retreat.
It comprises two agreements - a local currency bilateral swap agreement (LCBSA) that allows for the exchange of local currencies between the two central banks of up to US$7 billion; as well as an enhanced bilateral USD repurchase agreement of US$3 billion.
An LCBSA is a common form of bilateral financial cooperation between central banks.
Through such an agreement, a central bank can obtain foreign currency from another central bank in exchange for domestic currency at the prevailing exchange rate, with the agreement to reverse the transaction at the same exchange rate on a specified maturity date.
"The initiative reflects the strengthened bilateral monetary and financial cooperation between Singapore and Indonesia, and indicates the commitment of the authorities of Indonesia and Singapore to maintain financial stability amid the lingering uncertainty in the global financial market," said Bank Indonesia governor Perry Warjiyo who signed the agreements on Monday.
MAS managing director Ravi Menon added: "Economic fundamentals in the regional economies remain sound. But markets can sometimes overreact in the face of heightened uncertainty. This bilateral financial arrangement will instil confidence amongst investors. It also reflects the close relationship between Indonesia and Singapore.”