Indonesia to Cut USD Reliance With IDR Near Two-Year Low

  • Bank Indonesia seeks to reduce the country’s reliance on the USD, with plans to allow domestic transactions of non-deliverable forwards in other currencies and to strike more agreements on local-currency settlement.
  • The central bank could offer non-USD-denominated domestic NDFs in 2023, Edi Susianto, executive director for monetary management, said in interview on 29 Sep 22. The monetary authority is also seeking local-currency settlement deals with South Korea and Australia while pushing to conclude talks for an agreement with China, its largest trading partner.
  • “Our initiative to reduce reliance on USD is relatively new, but we’re seeing a significant growth in terms of transactions in the local currency settlements,” Susianto said. “We will continue to encourage more non-USD transactions with IDR to be carried out in the future.”
  • Indonesia has existing pacts with Malaysia, Thailand and Japan that have boosted transactions settled in non-USD currencies to USD2.8bn as of Aug 22, from USD2.5bn in end-2021. Bank Indonesia previously said such transactions would grow 10% in 2022.
  • Indonesia is a key advocate of using local currencies for trade and investment transactions in Southeast Asia and beyond, saying this would make for more efficient conversion and also expand the availability of hedging instruments. That initiative has taken on greater urgency as the IDR plunged this week to a two-year low since 2020.
  • The IDR’s current bout of weakness should be temporary as Southeast Asia’s largest economy is on a positive trajectory that will continue to attract capital and help the rupiah return to “its fundamental value,” he said. The central bank’s market interventions should be adequate to keep the IDR stable until then.
  • While Indonesia’s foreign reserves are set to decline toward the 2022-end, they will continue to sufficiently cover more than six months’ worth of imports, he added. The reserves were at USD132.2bn in Aug 22, equivalent to 6.1 months of imports.

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