Indonesian sees pressure on rupiah as temporary official

By on September 29, 2022 0

JAKARTA, Sept 29 (Reuters) – Pressure on the Indonesian rupiah is likely to be temporary, a senior Bank Indonesia (BI) official said on Thursday, predicting the currency would strengthen to reflect its fundamental value later in the year. year.

Edi Susianto, who heads BI’s monetary management department, told Reuters the central bank would prioritize policies that support the market mechanism and saw no need for capital controls.

The rupee hit its weakest level since April 2020 on Wednesday as global currencies came under pressure amid a rally in the US dollar.

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Edi expects the rupiah’s exchange rate to reflect Indonesia’s strong economic outlook later in the year, but declined to give BI’s estimate of its fundamental level.

“I am confident that we will reach the fundamental value (of the rupee)…once the volatility and sentiment in the market subside,” he said.

However, he predicted greater volatility in the currency markets in the coming weeks, driven by speculation over how much the Federal Reserve would raise US interest rates further.

Meanwhile, Indonesian President Joko Widodo on Thursday blamed Britain’s new fiscal policy, which included deep tax cuts, for exacerbating the turmoil in already strained markets.

The president said the rupiah’s decline of around 7% so far in the year was better than other Asian currencies.

Edi said BI guides the financial markets using its “triple intervention”, referring to trading in the spot foreign exchange (FX), domestic non-deliverable futures (DNDF) and bond markets.

The dominant operation has been in the DNDF market, where trades are settled in rupees, which limits BI’s use of foreign exchange reserves for intervention, he said.

“In the current situation, we have to be smart about managing our foreign exchange reserves,” Edi said, noting that intervention by other central banks has sometimes failed to reverse currency depreciations.

Indonesia’s foreign exchange reserves at the end of August stood at $132.2 billion, the lowest since June 2020 and about $12.7 billion below reserves at the end of 2021 .

BI has also conducted what it calls a “twist trade” in the bond market in recent months, selling short-term bonds and buying long-term bonds.

The sale of short-term bonds reduced capital outflows in September, Edi said, adding that BI had not bought many long-term bonds as pension funds and insurance companies bought them.

BI currently holds more than 1.3 trillion rupees ($85.33 billion) in government bonds, much of it accumulated during pandemic-era quantitative easing.

Edi did not elaborate on the twist in the deal, but said on a net basis it had to be in line with BI’s restrictive policy.

This year, BI raised interest rates twice for a total of 75 basis points and tightened bank liquidity rules.

($1 = 15,235.0000 rupees)

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Reporting by Gayatri Suroyo and Stefanno Sulaiman; Editing by Kanupriya Kapoor, Ed Davies

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