BI intervenes to defend rupiah

JAKARTA: Indonesia’s central bank has been buying sovereign bonds and selling foreign currency in “quite a sizeable amount” to halt the rupiah’s depreciation since last week and vowed to continue to stabilise the currency, its governor said yesterday.

Governor Agus Martowardojo said in a statement Bank Indonesia’s (BI) intervention had made the currency more stable this week, following a 0.7% fall against the dollar on Friday.

The rupiah touched a new two-year low of 13,898 a dollar yesterday, though volatility in the currency has subsided.

“BI will continue to be present in the market to maintain rupiah’s stability to reflect its fundamentals,” the governor said, while stressing that the rupiah’s swings so far this year have been smaller than those of the Brazilian real, Indian rupee or Philippine peso.

BI’s holding of sovereign bonds increased by 4.97 trillion rupiah ($357.61 million) on Friday from the previous day, while foreigners sold a net 1.64 trillion rupiah in the sovereign bond market, according to the Finance Ministry.

The yield on the benchmark 10-year sovereign bond jumped to 6.892% yesterday from 6.683 at the opening of Friday session.

On Friday and Monday, foreigners sold a combined 1.23 trillion rupiah of Indonesian company stocks.

In a sign of cautious investor sentiment, the Finance Ministry said it had raised 6.15 trillion rupiah in a bond auction on yesterday, less than half its indicative target of 17 trillion rupiah and the smallest raising at any of its bi-weekly auctions so far this year.

Indonesia’s foreign exchange reserves were $126 billion at the end of March, $6 billion lower than the January level.

BI has previously said it used the reserves partly for currency intervention, but has never revealed details.

The March reserves level was equal to 7.9 months of imports, far above the international adequacy standard of three months, BI said.

Martowardojo said a number of global developments could continue to trigger capital outflows from Indonesia’s bond and stock markets, including rising interest rates in the United States, a possible trade war between US and China and higher oil prices.

Domestically, rising foreign currency demand from companies to pay for imports and foreign debt could also pressure the rupiah, he said.

Martowardojo had previously said he expected volatility in the currency market starting in May if markets bet on the Federal Reserve hiking rates in June.

BI kept its key interest rate on hold in a policy meeting last week, but put out a statement that several economists thought was more hawkish.

Some of them have said the central bank may have to raise the rate to fend off capital outflows if the Fed raises rates faster than initially expected.