Bank Indonesia Says No Plan for Capital Controls

Indonesia's central bank kept its benchmark interest rate unchanged on Tuesday, taking a pause after 150 basis points of rate hikes since May, and warned that third-quarter economic growth may not be as strong as initially expected. (Reuters Photo/Willy Kurniawan)

By : Gayatri Suroyo and Ed Davies | on 5:16 PM June 06, 2018
Category : Business, Economy

Jakarta. The central bank has no plan to implement capital controls to support the rupiah during periods of global market volatility, Bank Indonesia Governor Perry Warjiyo said on Wednesday (06/06).

"Bank Indonesia has no plans, not even thinking to recommend any capital control measures," Perry, who was sworn in as governor late last month, told a media gathering in response to a question about the possibility of such measures.

Alongside other emerging markets, Indonesia has seen an outflow of funds as US assets become more attractive due to rising interest rates.

The rupiah has been among the worst performing currencies in the region while Indonesia's main stock index slumped and yields on its sovereign bonds rose across the board. Its markets have since pared some losses with investors returning to buy bonds while the rupiah has strengthened.

Perry said emerging markets with sound economic policies should have the option to manage capital flows as part of the country's macroeconomic policies.

He noted institutional views and guidance by the International Monetary Fund on capital flow management that he said he contributed to in 2011-2013.

"This should not be a substitute for macro-policies but capital flow management can be done if an emerging market has applied fiscal discipline and prudent monetary policy," Perry said.

Such measures, if taken, should be targeted and have a specific time period, he said.

Emerging markets around the world saw a combined $12.3 billion of outflows in bonds and stocks last month, according to data from the Institute of International Finance.

Bank Indonesia raised its benchmark interest rate for the second time in two weeks at an out-of-cycle policy meeting on May 30, after hiking rates earlier that month.

Perry had called the off-cycle meeting a day after taking the helm of the central bank, stepping up efforts to tame market contagion.

After raising the key rate, he said Bank Indonesia would assess developments to see if it needed to raise the key rate again.

On Wednesday, he reiterated the possibility of a further rate hike, adding that the central bank "will not go crazy" on raising rates and that it would be done in a measured way.

The central bank is also in talks with China to extend its bilateral swap agreement, which could be utilized to support the rupiah, if needed, the governor said.

In total, Bank Indonesia has raised its key rate by 50 basis points in May, bringing it to 4.75 percent.

Reuters

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