Indonesia c.bank sees pressure on rupiah as temporary-official



By Gayatri Suroyo and Stefanno Sulaiman

JAKARTA, Sept 29 (Reuters) - Pressure on Indonesia's rupiah is expected 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.

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

The rupiah IDR= hit its weakest since April 2020 on Wednesday, as currencies globally came under pressure amid a rally in the U.S. dollar.

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

"I have a belief that we will achieve the fundamental value (of the rupiah) ... once the volatility and the sentiment in the market eases," he said.

However, he predicted more volatility in foreign exchange markets in coming weeks, driven by speculation over how much further the Federal Reserve would raise U.S. interest rates.

Separately, Indonesian President Joko Widodo on Thursday blamed Britain's new fiscal policy, which included sharp tax cuts, for exacerbating turmoil in markets already on edge.

The president said the rupiah's roughly 7% drop so far in the year was better than other Asian currencies.

Edi said BI has been guiding financial markets using its "triple intervention", referring to operations in the spot foreign exchange (FX), domestic nondeliverable forward (DNDF) and bond markets.

The dominant operation has been in the DNDF market, where transactions are settled in rupiah, which limits BI's use of FX reserves for intervention, he said.

"In the current situation, we must be smart in managing our FX reserves," Edi said, noting intervention by other central banks had sometimes failed to reverse currency depreciations.

Indonesia's FX 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 in recent months been conducting what it calls "operation twist" in the bond market, selling short-dated bonds and buying long-term ones.

The sale of short-term bonds had reduced capital outflows in September, Edi said, adding BI had not been buying many long-term bonds as pension funds and insurance firms were purchasing.

BI currently holds over 1,300 trillion rupiah ($85.33 billion) of government bonds, much accumulated during pandemic-era quantitative easing.

Edi did not give details on operation twist, but said, on a net basis, it must be in line with BI's contractionary policy.

This year, BI has raised interest rates twice by a total of 75 basis points and tightened banking liquidity rules.

($1 = 15,235.0000 rupiah)
Reporting by Gayatri Suroyo and Stefanno Sulaiman; Editing by Kanupriya Kapoor, Ed Davies

Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

We are using cookies to give you the best experience on our website. Read more or change your cookie settings.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.