BI to Continue 'Cautious Intervention'

Jakarta, Indonesia (News Today) - Indonesia's central bank will continue “cautious intervention“ to smooth exchange rate fluctuations amid recent strengthening of the local currency, its deputy governor said Thursday.

“We still see inflows to stocks and bonds, which help the rupiah's strengthening,“ Bank Indonesia Deputy Governor Hartadi Sarwono told Dow Jones Newswires.

The comments came after the U.S. dollar nearly fell through the psychologically important IDR9,000 mark Wednesday. The dollar was at IDR9,003 late Wednesday, with traders saying they did not detect any central bank intervention.

“We were quite surprised yesterday as BI did not enter the market, even when the pair came very close to 9,000. A day before, the central bank seemed to only intervene in small amounts. Its moves were not typical,“ a dealer at a foreign bank said.

Dealers suspect the central bank bought around $30 million Tuesday to curb the rupiah's appreciation. The amount, however, was marginal compared to the hundreds of millions of dollars Bank Indonesia used to trade in order to minimize large forex swings, dealers said.

The dollar stood at IDR9,007 at 0530 GMT. The rupiah has gained about 4.6% against the dollar so far this year.

Inflows remain healthy after hot-money curbs

“Foreign flows are still entering the country in an orderly fashion, and (it) has started to shift from SBIs (short-term central bank certificates) to government bonds, as a result of recent policies, specifically the one-month holding period,“ Sarwono said.

Bank Indonesia last month issued a set of policies aimed at curbing hot money flows and smoothing volatility in the rupiah. The changes include requiring a one-month minimum holding period for SBIs and introducing SBIs with longer maturities of nine- and 12-months in addition to the existing one-, three-, and six-month SBIs.

Other asset classes in the country have rallied so far this year, with the Jakarta composite index reaching a record high at Wednesday's close and bond yields reaching record lows recently.

With improving sentiment toward high-yielding assets, the country's strong economic growth and prospects it will receive an upgrade from rating agencies, foreign flows are likely to continue entering Southeast Asia's biggest economy, analysts said.

Still, strong inflows could suddenly reverse, causing instability. Sarwono said that Bank Indonesia will “continue to increase foreign exchange reserves to safeguard against reversals“ of funds.

He added the central bank's forex reserves stood at $77.6 billion as of July 27, up from $76.3 billion at the end of June.

Source : kompas

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