Bank Indonesia Says 'Intervening' in FX Market to Defend Rupiah Against Turkish Lira Fallout

The central bank intervened to defend the rupiah on Monday (13/08) after the currency fell amid a wider emerging market sell-off, a senior official said. (Reuters Photo/Thomas White)

By : Gayatri Suroyo, Maikel Jefriando & Fransiska Nangoy | on 12:13 PM August 13, 2018
Category : Business, Economy, Featured

Jakarta. Bank Indonesia intervened to defend the rupiah on Monday (13/08) after the currency fell amid a wider emerging market sell-off, a senior official said.

The rupiah led losses among Asian emerging market currencies and was down 0.97 percent from Friday's close at 14,610 per dollar on Monday, the weakest since October 2015.

"We are intervening," Nanang Hendarsah, Bank Indonesia's head of monetary management told Reuters when asked whether the central bank was in the currency market to defend the rupiah.

Indonesia's 10-year bond yield hit 7.872 percent, the highest since July 23, on Monday before sliding slightly. Jakarta's main stock index fell nearly 3 percent.

Bank Indonesia Deputy Governor Dody Budi Waluyo told Reuters the rupiah was under pressure due to emerging market contagion from the plunge in the Turkish lira.

Analysts also point to Indonesia's widening current-account deficit – at 3 percent of gross domestic product in the second quarter – as a factor behind the selloff.

However, Dody said the current-account gap is not a major cause for concern and that the central bank still had means to stabilize the rupiah.

"Of course, exchange rate stabilization measures that have been done will continue to be implemented," he said, explaining that Bank Indonesia will try to keep ahead of market developments.

Dody said the central bank could additionally intervene in both the currency and bond markets, raise interest rates or let the rupiah gradually depreciate according to its fundamentals.

Bank Indonesia has already increased its key interest rate three times since mid-May.

The central bank is due to hold a two-day policy meeting that ends Wednesday.

Bank Indonesia has spent part of its foreign exchange reserves to defend the rupiah. FX reserves declined $13.7 billion from February through to July with most of that decrease seen earlier in the year.

Bank Indonesia's Nanang said the central bank had not needed to intervene heavily as dollar demand had been relatively stable over the past month. As a result, he said the rupiah exchange rate had been well managed over that period.

The rupiah had been trading between 14,300 and 14,400 a dollar in the past few weeks before Monday.


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