Bank Indonesia Intervenes With ‘Sizable Amount’ to Defend Rupiah

• Indonesia’s central bank has been buying sovereign bonds and selling foreign currency in “quite a sizable amount” to halt the rupiah’s depreciation since last week and will continue to stabilize the currency, its governor said on 24 Apr 18.
• Governor Agus Martowardojo said in a statement that Bank Indonesia’s (BI) intervention had made the currency more stable this week, following a 0.7% fall against the dollar on 20 Apr 18.
• On 24 Apr 18, the rupiah touched a new two-year low of IDR13,899 a dollar, though volatility in the currency has subsided.
• “BI will continue to be present in the market to maintain the rupiah’s stability to reflect its fundamentals,” the governor said, adding that the rupiah’s swings so far have been smaller than those of the Brazilian real, Indian rupee and Philippine peso.
• In a sign of cautious investor sentiment, the finance ministry said it had raised IDR6.15tr in a bond auction on 24 Apr 18, less than half its indicative target of IDR17tr and the smallest amount of its biweekly auctions so far in 2018.
• Indonesia’s foreign exchange reserves were USD126bn at the end of Mar 18, USD6bn lower than the Jan 18 level. BI has previously said it used the reserves partly for currency intervention, but has never revealed details.
• The Mar 18 reserves level was equal to 7.9 months of imports, far above the international adequacy standard of three months, BI said.
• BI is under pressure to keep the rupiah stable with some economists and market players pointing to the need to raise its benchmark interest rate.
• Kartika Wirjoatmodjo, chief executive of Indonesia’s second-biggest bank by assets Bank Mandiri, said BI’s policy rate will have to follow that of the US Federal Reserve in the next one to three months to respond to the weakening rupiah.
• BI kept its key interest rate on hold in a policy meeting last week, but put out a statement that several economists thought was more hawkish.
• Domestically, rising foreign currency demand from companies to pay for imports and foreign debt could also pressure the rupiah, he said.

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