When Monetary Policy Finds Its Way to the Real Sector

The author is an employee at the Bank Indonesia Representative Office in Jember, East Java.

JurnalPost.com - Monetary policy cannot simply operate within the confines of a central bank's boardroom. Changes in interest rates, liquidity management, and rupiah exchange rate stabilization only hold meaning when their influence flows into financial markets, the banking sector, businesses, and households. This is where the depth of the financial market acts as a bridge, determining whether policy signals remain mere figures or truly drive economic activity.

Bank Indonesia's move to expand the securities eligible as underlying assets for monetary operations should be viewed within this framework. High-quality corporate bonds and sukuk now have greater room in monetary operation repo transactions. This policy addresses two objectives simultaneously: strengthening the effectiveness of monetary transmission and deepening the corporate securities market, which has not been as active as the government securities market.

This policy also marks a significant shift in how monetary operations are conducted. Bank Indonesia is no longer solely focused on absorbing or injecting liquidity but is also striving to build a money market and foreign exchange market that are more liquid, efficient, and connected to economic financing. A pro-market approach allows monetary operation instruments to function as levers for market activity, rather than just technical tools for maintaining short-term interest rates.

Securities as a Liquidity Bridge

In repo transactions, securities serve as collateral to obtain liquidity for a specific period. When high-quality corporate bonds and sukuk are accepted as underlyingassets, these securities take on an increasingly strategic function. Banks not only earn yields from their holdings but also possess assets that can be used to meet liquidity needs through Bank Indonesia's monetary operations.

With this function, securities can act as a bridge between liquidity in the financial market and the financing needs of the real sector. The easier it is to use a bond in a repo transaction, the greater its appeal to banks and investors. Increased demand can then drive trading activity in the secondary market, strengthen price discovery, and create more diverse sources of financing for corporations.

The impact is already visible in the bonds and sukuk of PT Sarana Multigriya Finansial (SMF). From their launch on November 10, 2025, to September 30, 2026, repo transactions for monetary operations with underlying PT SMF securities reached IDR 1.25 trillion. The trading volume of PT SMF securities in the secondary market also increased from an average of IDR 31.9 billion per day in October 2025 to IDR 179.9 billion per day by the end of August 2026. This means trading activity increased more than fivefold in less than a year.

The banking sector's response is also evident in ownership levels. The value of PT SMF bonds held by banks rose by 18 percent, from IDR 8.69 trillion to IDR 10.22 trillion. This increase shows that accepting securities as underlying assets for monetary operations can create new demand while expanding the investor base. The more participants trading an instrument, the greater the opportunity for fair, transparent pricing that reflects market conditions.

A subsequent expansion was carried out for the bonds and sukuk of PT Sarana Multi Infrastruktur (SMI). In the inaugural repo auction on September 28, 2026, transactions with underlying PT SMI securities reached IDR 60 billion. While the value is still limited compared to PT SMF transactions, this initial step is significant because PT SMI holds a strategic mandate in infrastructure financing.

The relationship between monetary operations and development is certainly not direct. Bank Indonesia is not an institution that finances housing or infrastructure projects. However, when the bonds of development finance institutions become more liquid and easier to use in managing bank funds, the appeal of these instruments is likely to increase.

This condition can help issuers obtain financing at more efficient costs while reducing the real sector's dependence on bank credit.

Maintaining Quality Amid Expansion

The success of this policy should not be measured solely by the increase in the types of securities accepted in monetary operations. A greater challenge is ensuring that every instrument maintains high quality, transparent pricing, and is supported by trustworthy issuer governance.

The term "high quality" must be translated through strict criteria, including credit ratings, the issuer's financial health, instrument liquidity, payment track records, and information disclosure.

Prudence is necessary because the expansion of assets accepted by the central bank could create the perception that the risk of the securities has shifted to the authority. In reality, credit risk remains with the issuer, and investment decisions remain the responsibility of market participants.

Therefore, careful valuation, the application of haircuts, concentration limits, and periodic feasibility evaluations must be an inseparable part of the policy.

Strengthening governance is also important to maintain investor confidence. A deep financial market requires not only many instruments but also clear rules, data transparency, supervision, and consistent law enforcement.

Liquidity should not grow artificially. Transaction activity must reflect market needs and result in credible price formation.

Coordination between Bank Indonesia, the Ministry of Finance, the Financial Services Authority (OJK), and market participants is becoming increasingly important. Bank Indonesia has an interest in strengthening the effectiveness of monetary policy transmission. The Ministry of Finance has an interest in expanding sources of development financing, while the OJK is tasked with maintaining the health of issuers and protecting investors.

Without strong coordination, the expansion of instruments could outpace the readiness of market infrastructure and governance.

Deepening the financial market is not an end in itself. A deep, liquid, and efficient market is needed so that public savings can be channeled into productive financing. Indonesia needs an increasing number of instrument choices so that funding needs for housing, infrastructure, industry, and green economic activities do not rely solely on bank balance sheets.

The expansion of underlying assets for monetary operations paves the way in that direction. The IDR 1.25 trillion in PT SMF repo transactions, the increase in its daily trading volume, the rise in bond ownership by banks, and the inaugural PT SMI auction of IDR 60 billion signal that policy design can influence market behavior.

The next task is to ensure that this path continues to widen without compromising the principle of prudence. Strong monetary policy is not only capable of maintaining stability but is also able to make securities a bridge for liquidity toward financing that invigorates the real sector.