Literally, minimum obligatory giro is a fund or minimum saving which have to be maintained by a bank in form of giro balance account and kept in Bank Indonesia. The amount of minimum obligatory giro (GWM) is set by central bank based on the percentage of third party that is collected by the banking.

GWM is actually a monetary instrument or macroprudential to manage circulated money in society which directly influence the inflation index. Based on central bank data, there are three GWM policies applied as monetary policy instrument and macroprudential policy in Indonesia. First, primary GWM which is minimum saving (in rupiah) that is maintained by the bank in a giro account in Bank Indonesia with the amount set by ratio towards third party fund and collected by banking.

After being set on March 16 2016, the amount of GWM now is 6.5%, the amount before was 7.5%. Primary GWM is a tool to expand or to add bank liquidity if being lowered.

On the contrary, to control the banking credit distribution when being raised or reduce the bank liquidity. The GWM policy is aimed at influencing liquidity in order to influence interest rate or banking credit distribution. Banking GWM was once being cut about 5% during the crisis in 2008 to loosen the liquidity at that moment. After that, it was raised to 8% in 2010. GWM was slowly lowered to 6.5%.

Second is secondary GWM, which is a minimum spare (in rupiah) that must be maintained by bank in form of securities such as Bank Indonesia Certificate, Bank Indonesia Deposit Certificate. The amount of secondary GWM is set in ratio of the third party fund. The amount of secondary GWM in March 2016 is 4% in rupiah and unavailable in foreign currency.

The secondary GWM policy is aimed at influencing bank spare liquidity and deepening financial sectors at the same time. If it is being raised, the objective is to reduce the bank credit capacity. On the contrary, when being lowered, the objective is to increase the bank capacity credit.

Third is GWM based on credit ratio towards all collected bank fund (loan to funding ratio/LFR) which is minimum rupiah saving that must be maintained by the bank in giro account at central bank as much as the certain percentage which is calculated based on the deviation between LFR Bank realization and LFR target set by Bank Indonesia. LFR target in August 24 2016 was changed to 80%-92% from 78%-92% before. And it is unavailable in foreign currency.

The objective of GWM-LFR is to encourage banking credit distribution stay in the set range to push intermediation in order to boost the economy growth but still keep the principle carefully. In July 2016, the third party fund reached 4,585.38 billion IDR. With the policy of 6.5% primary GWM, it means that the bank giro fund is placed in central bank as much as 298.05 billion IDR. That fund is excluded from secondary GWM and GWM-LFR.

Source : https://sikapiuangmu.ojk.go.id/FrontEnd/CMS/Article/333