Bank Indonesia Intervenes in FX, Bonds Markets, as Rupiah Near 1998 Crisis Levels

Indonesia's central bank was 'decisively' intervening in the foreign exchange and bond markets on Friday (31/08). (Antara Photo/Reno Esnir)

By : REUTERS | on 4:38 PM August 31, 2018
Category : Business, Economy

Jakarta. Indonesia's central bank was "decisively" intervening in the foreign exchange and bond markets on Friday (31/08), a senior bank official told Reuters, as the rupiah slid closer to levels not seen since the Asian financial crisis in 1998.

Bank Indonesia (BI) has bought Rp 3 trillion ($204 million) of government bonds in the market for intervention, said Nanang Hendarsah, BI's head of monetary management.

The rupiah was trading at 14,725 per dollar on Friday, its weakest since September 2015, and only a notch below levels last seen in 1998.

The Indonesian currency has lost nearly 8 percent this year, caught up in an emerging market selloff, which was worsened this week by a plunge in Argentina's peso.

Indonesia's benchmark 10-year bond yield hit 8.077 percent on Friday, the highest since December 2016, and against the previous day's closing of 7.967 percent.

Nanang said bond outflows had pressured the rupiah and so far this year BI had bought around Rp 80 trillion of government bonds to keep yields from rising too fast. He said the majority of purchases were made during government auctions.

Bahana Securities' economist Satria Sambijantoro said BI remained the sole supplier of dollars in the onshore forex market.

"We observe there is unwillingness among local commodity exporters to exchange dollars, on the back of fears of further rupiah depreciation," Satria said, adding that importers had also purchased more dollars than they need.

Indonesia's main stock index, which has seen nearly Rp 50 trillion of net foreign sales this year, was down 1 percent on Friday.

Asian markets were also under renewed pressure on Friday after a report that US President Donald Trump was preparing to step up a trade war with Beijing.

"Indonesia snapped the three-day recovery mood and we expect the downward trend to continue followed by headlines that Trump is ready to impose tariffs on $200 billion worth of Chinese goods," said Taye Shim, head of research at Mirae Asset Sekuritas in Jakarta.

BI, which has repeatedly said stabilizing the rupiah was its main priority, has raised interest rates four times since May by a total of 125 basis points to defend the currency.

The government has also unveiled plans to tackle surging imports, which add to a shortage in onshore dollar supply and widening the current account deficit.

The plans include higher import tariffs for some consumer goods and enforcing wider use of biodiesel from next month to cut oil imports.

A weak exchange rate could put upward pressure on inflation, though Indonesia's annual rate, at 3.18 percent in July, was relatively low by the country's historical standards.

A Reuters poll on Friday expected the inflation rate to pick up to 3.33 percent in August.

Additional reporting by Tabita Diela.

Reuters

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