BI ready to use interest rate policy to stabilise rupiah
JAKARTA: Indonesia’s newly sworn in central bank governor yesterday promised to use interest rate policy to stabilise the rupiah currency in the near term and to be “more pre-emptive” and ahead of the curve on monetary settings.
The rupiah has been among the worst performers among Asian currencies this year, losing more than four per cent of its value, as investors slash their holdings in emerging markets in response to rising United States Treasury yields.
“My priority in the short term is to strengthen steps required to immediately stabilise the rupiah exchange rate,” said governor Perry Warjiyo after his inauguration.
Yesterday, the rupiah hit its weakest level since October 2015 of 14,210 per US dollar, before edging up to 14,160 after the statement by the new Bank Indonesia (BI) governor.
The main monetary policy rate and “dual intervention” of selling dollars and buying government bonds would be the main tools to shore up the rupiah, he said.
So far this year BI had bought 50 trillion rupiah (RM14.11 billion) of government bonds from foreign sellers with most of the operations done in the past month, he added.
BI raised its key rate by 25 basis points to 4.5 per cent last week, the first hike since November 2014.
When the rupiah extended falls the next day, outgoing governor Agus Martowardojo, said BI would be prepared to raise rates further.
Perry reiterated his predecessor’s view that the current weakness in the rupiah was due to external factors.
He said Southeast Asia’s largest economy had sound fundamentals, predicting economic growth at 5.2 per cent this year, with an inflation rate near the midpoint of BI’s target range and a current account deficit under BI’s healthy threshold.