KONTAN.CO.ID - JAKARTA, Oct 23 - Bank Indonesia on Friday pushed back against criticism by some in the market that its latest policy package was confusing, saying the measures were aimed at improving how its decisions flow through to the broader economy.

The central bank this week kept its benchmark interest rate unchanged, raised the overnight deposit facility rate, announced cuts to banks' reserve requirement ratio (RRR) and offered more FX hedging discounts, in a policy mix that some economists described as "perplexing", "confusing" or "complex".

"This is BI's strategy to harmonise and synchronise our policy rate with our monetary operations strategy," Firman Mochtar, BI's head of economic and monetary policy, told a press conference.

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Firman said the higher deposit facility rate restored a symmetrical interest-rate corridor, bringing both the deposit and lending facility rates to 75 basis points from the benchmark rate.

BI had previously maintained a wider 100-basis-point gap between the benchmark and deposit rates because of government fund placements in commercial banks, he said.

He was referring to the government's controversial decision to move excess cash from BI to state-controlled banks to increase banking liquidity. Following a change in leadership at the finance ministry, some of the funds have been withdrawn.

Going forward, it would be better to harmonise the policy rate corridor with BI's monetary targets, Firman said.

He added that the corridor adjustment was consistent with the central bank's planned reserve-requirement cuts.

BI has briefed market participants on the changes, he said.

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The central bank plans to cut reserve requirements by a cumulative 200 basis points by December. However, changes to its liquidity incentive scheme mean the effective reserve ratio will fall to about 2%, roughly 100 basis points below its previous level.

"The additional liquidity is not massive. We have calculated and it's consistent with the BI rate and economic activities," Firman said, estimating an increase of 90 trillion rupiah ($4.98 billion) in liquidity.

Erwin Gunawan Hutapea, BI's head of monetary management, said the central bank also wants banks to favour shorter-dated instruments over parking excess funds in its rupiah securities, known as SRBI.

BI had previously raised interest rates on SRBI to attract foreign capital inflows. However, Erwin said BI has reduced the level of outstanding SRBI from 1,096 trillion rupiah in July to below 950 trillion rupiah now.

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Bank of America economists initially labelled BI's policy mix as "hold, hike and cut all at once" and "perplexing". They later said in a note the measures were less contradictory than they first appeared.

"The RRR cuts do not necessarily signal a reduced willingness to hike policy rate if needed, in our view," they wrote.