[JAKARTA] Flighty financial flows are now the most pressing challenge Indonesia faces as it seeks to strengthen its balance of payments, the central bank governor said on Thursday.
Agus Martowardojo told reporters that financial flows are now a more pressing concern than the current-account deficit, which has narrowed to its lowest level for nearly two years. "We are working to improve the health of the current account, and things have improved, but there is a new challenge, namely financial transactions," he said.
Indonesia saw its balance of payments record a deficit of US$4.6 billion in the third quarter due to large outflows from its stocks and bonds, even as the current account recorded its smallest deficit since late 2011.
Bank Indonesia left its main interest rates on hold at its most recent meeting on Nov 17, saying that it would act cautiously given volatility in global financial markets, though it eased policy by lowering reserve requirements.
The rupiah has fallen by nearly 10 per cent against the dollar so far this year, and the risk of capital outflows ahead of a hike in US interest rates, possibly as soon as December, has made it tricky for Indonesia's central bank to cut rates to support growth. "In 2014 there were large (financial) inflows, but now they've decreased," Martowardojo said. "The impact this has had is that it is no longer enough to finance the current account deficit and as a result the balance of payments is in deficit."