Indonesia’s forex reserves continue to fall in September amid pressure on rupiah
[JAKARTA] Indonesia’s foreign exchange (forex) reserves dipped to US$134.9 billion as of the end of September – a fall of US$2.2 billion – as the central bank ramped up its efforts to stabilise the rupiah’s exchange rate amid heavy capital outflows.
This continued a downward trend that began in March this year. The Bank of Indonesia (BI) said in its latest report that the decline in forex reserves was due to payment of offshore public debt, as well as the intervention to stabilise the rupiah amid the ongoing global economic uncertainty.
The end-September reserve level was equal to 6.1 months of imports, above an international standard of 3 months of imports. BI also said that this was adequate to support external resilience and maintain financial and economic stability.
The rupiah has reached its weakest levels since January. On Tuesday (Oct 10) afternoon, the currency was trading at 15,743 to the US dollar. Last week, the benchmark 10-year bond yield rose to as high as 7.05 per cent, the highest since March.
Edi Susianto, the head of monetary management at BI, was quoted as telling Reuters that the rise in bond yields and capital outflows from Indonesia remained “manageable”. He added that the central bank was open to the possibility of buying bonds to manage yields.
Satria Sambijantoro, an analyst at Bahana Sekuritas, said the ongoing forex reserves decline could be attributed to the weakening global bond yields.
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He said these yields have an important role in Indonesia as more than 70 per cent of BI’s forex reserves are placed in bonds, mostly in US treasuries.
“When forex intervention needs are higher than anticipated, a central bank has to sell its US dollar holdings and realise the mark-to-market bond losses,” he wrote in a note.
The central bank has been trying to balance the rupiah’s stability as it seeks to keep inflation in check and maintain growth momentum in South-east Asia’s largest economy, at a time when exports are falling amid softening commodity prices.
In an effort to rein in inflationary pressures, BI hiked interest rates by a total of 225 basis points between January and August this year. Governor Perry Warjiyo said in a Bloomberg TV interview in London on Oct 6 that the central bank is set to keep interest rates steady to protect the rupiah from the global market selloffs.
Radhika Rao, a senior economist at DBS Bank, said that with the US Federal Reserve expected to stay hawkish for longer than previously anticipated, BI will remain focused on capital flow management policies to ensure currency and financial market stability.
Commenting on the September forex reserve figures, UOB economists Enrico Tanuwidjaja and Agus Santoso said they maintain their forecast of the reserves to remain “in high levels” of around US$135 billion to US$145 billion at the end of this year, on the back of a better outlook especially from coal demand and inflows into the bond market.
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