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Indonesia president to hold cabinet meeting on FX strategy
[JAKARTA] Indonesian President Joko Widodo will hold a cabinet meeting on Tuesday to discuss foreign exchange strategy, a finance ministry spokesman said, a day after the rupiah plunged more than 1 per cent.
The meeting to discuss how to bolster foreign exchange reserves is due to be held at 1.30pm (0630 GMT), finance ministry spokesman Nufransa Wira Sakti said. It has been brought forward from Tuesday evening.
The rupiah plunged to its weakest level since October 2015 at 14,625 a dollar on Monday and brushed the level again on Tuesday, before recovering slightly to 14,620 a dollar by 0435GMT.
The yield on the benchmark 10-year government bond hit 8.007 per cent on Tuesday, the highest since December 2016, as investors sold emerging markets assets after being spooked by the currency turmoil in Turkey.
Indonesia's central bank intervened to defend the rupiah on Monday and kicks off its two-day policy meeting on Tuesday.
Bank Indonesia (BI) has raised its main interest rate by 100 basis points since mid-May to defend the rupiah but is expected to keep its benchmark interest rate unchanged on Wednesday, a Reuters poll showed.
The majority of analysts in the poll forecast BI to hold, but four who initially had pencilled in a hold changed their views to expect a 25-basis point hike after the rupiah's fall.
BI has spent billions of dollars to defend the currency. Foreign exchange reserves had declined US$13.7 billion from February through July, as BI sought to stabilise the rupiah as US interest rates rise and global trade tension builds up.
Indonesia's currency vulnerability has been exacerbated by persistent deficits. The current account deficit, a major concern for global emerging market investors, swelled to the largest in nearly four years in the second quarter.
Indonesia needs portfolio investment to cover the gap, since it is not attracting enough foreign direct investment (FDI). On Tuesday, the investment board reported FDI into Indonesia contracted for the first time since at least 2011 in the second quarter from a year earlier.
The investment board's chief, Tom Lembong, attributed the decline to project suspensions as investors remain cautious with uncertainties overhanging the financial and political outlook. Indonesia will hold parliamentary and presidential elections in 2019.
The central bank and the government have focused on relieving pressure on the rupiah, one of Asia's worst performing currency this year.
The government has previously announced a plan to widen the use of biodiesel starting September and delay some infrastructure projects, to reduce imports and ease local demand for dollars.
Officials at the finance ministry have also said they were looking at ways to encourage exporters to convert their dollar earnings to rupiah.