Responding to the current development of rupiah exchange rate, Bank Indonesia considers the following:
We consider that the recently occurring rupiah depreciation is more attributable to the strengthening of the American currency (USD) against nearly all currencies in the world (broad based). This USD strengthening is an impact of the continued increase in UST yield (interest rates of US bonds) reaching 3.03% (the highest since 2013). In addition, rupiah depreciation relates to the seasonal increasing foreign currency demand during the second quarter, among others to pay external debts and import financing, as well as dividends.
The fundamental of Indonesia’s economy is currently strong. Inflation remains within the target of 3.5+1%, current transaction deficit is lower than the safe threshold of 3% of GDP, economic growth momentum is followed by better growth structure, and financial system stability remains resilient. Foreign trust also keeps improving as reflected from the upgraded rating of Indonesia by Moody’s, JCRA, and R&I, and the inclusion of sovereign bonds to Bloomberg Global Bond Index.
As of Thursday, 26 April 2018, rupiah is depreciated by -0.88% (mtd). Such depreciation remains lower than that of other Asian currencies, including Thai Baht (-1.12%, mtd), Malaysian Ringgit (-1.24%, mtd), Singapore Dollar (-1.17%, mtd), South Korean Won (-1.38%, mtd), and Indian Rupee (-2.4%, mtd).
By observing such development, Bank Indonesia has taken stabilization steps in both foreign currency market and sovereign securities market (dual intervention) to minimize too rapid and excessive depreciation.
Going forward, to strengthen efforts to stabilize rupiah exchange rate according to its fundamental by encouraging market mechanism, Bank Indonesia will take the following steps:
- Consistently remain in the market to ensure availability of liquidity in a sufficient amount for foreign currencies and rupiah;
- Cautiously monitor global economic development and its impact on domestic economy;
- Prepare the second line of defence together with the relevant external institutions;
- If the pressure on exchange rate continues and potentially hinders the achievement of inflation target and interferes with financial system stability as the mandates of Bank Indonesia, Bank Indonesia will not close the possibility to adjust BI 7-Day Repo Rate (BI7DRR). This policy will certainly be adopted in a careful and measured manner, and it is a dependent data referring to the latest data development and future forecast.
Jakarta, 26 April 2018
