Indonesia: Financial Sector Assessment Program-Technical Note on Macroprudential Policy

This Technical Note focuses on Macroprudential Policy for the Indonesia Financial Sector Assessment Program. Indonesia’s current overall level of macrofinancial vulnerabilities is low. Systemic risk analysis is in line with international practice, supported by good data collection powers although some data gaps remain. Most large banks hold considerably higher capital and liquidity levels than is required by regulation—suggesting many of the macroprudential measures are not binding for most of the system—and the accommodative stance does not pose near-term risks to financial stability. The authorities should clarify that the ultimate objective of macroprudential policy is to maintain financial stability. Bank Indonesia, the Central Bank should separate and differentiate the inclusive financing ratio and the liquidity incentives from the macroprudential toolkit, underline the safeguard measures in place, and regularly assess their impacts. It would be helpful to classify or differentiate these two instruments.