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 Tuesday (24/04). (Reuters Photo/Yuri Gripas)

Bank Indonesia Intervenes With 'Sizable Amount' to Defend Rupiah

BY :GAYATRI SUROYO & FRANSISKA NANGOY

APRIL 24, 2018

Jakarta. 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 Tuesday (24/04).

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 percent fall against the dollar on Friday.

On Tuesday, the rupiah touched a new two-year low of 13,899 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 this year have been smaller than those of the Brazilian real, Indian rupee and Philippine peso.

BI's holdings of sovereign bonds increased by Rp 7.12 trillion ($512.78 million) in two trading days to Monday, while foreigners sold a net Rp 3.18 trillion in the sovereign bond market, according to Indonesia's finance ministry.

The yield on the benchmark 10-year sovereign bond jumped to 6.887 percent on Tuesday from 6.683 percent at the opening of Friday's session.

Foreigners sold a combined Rp 1.9 trillion of Indonesian company stocks from Friday to Tuesday.

In a sign of cautious investor sentiment, the finance ministry said it had raised Rp 6.15 trillion in a bond auction on Tuesday, less than half its indicative target of Rp 17 trillion and the smallest amount of its biweekly auctions so far this year.

Indonesia's foreign exchange reserves were $126 billion at the end of March, $6 billion lower than the January level. BI has previously said it used the reserves partly for currency intervention, but has never revealed details.

The March 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.

"If BI's policy direction shows an alignment with the Fed's rates in the second quarter, the dollar's exchange rate could be in a range of 13,700-13,900 rupiah by the end of the year," he told reporters.

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.

In his Tuesday statement, Governor Martowardojo said a number of global developments could continue to trigger capital outflows from Indonesia's bond and stock markets, including rising interest rates in the US, a possible trade war between US and China and higher oil prices.

Domestically, rising foreign currency demand from companies to pay for imports and foreign debt could also pressure the rupiah, he said.

Reuters

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