Monitoring the latest economic conditions in Indonesia, the impact of COVID-19 in particular, Bank Indonesia Governor, Perry Warjiyo, announced three new developments on Tuesday (07/04) along with the policy measures instituted by Bank Indonesia as follows:
Rupiah exchange rate stable and trending stronger
Today (07/04), the value of the rupiah strengthened by Rp225 or 1.56% (ptp) to a level of Rp16,125 per US dollar and remained stable, with expectations of around Rp15,000 per US dollar at the end of the year. The stronger rupiah is supported by exchange rate stabilisation measures, firm policy commitment and intensive communication between the Government, Bank Indonesia, Indonesian Financial Services Authority (OJK) and Deposit Insurance Corporation (LPS). In addition, market mechanisms remain sound. Moving forward, Bank Indonesia will continue to intervene as required in order to maintain exchange rate stability.
Reserve Assets Maintained in March 2020
Indonesia’s reserve assets at the end of March 2020 stood at USD121.0 billion, down from USD130.4 billion at the end of February 2020. The position was eroded in March 2020 by servicing government external debt to the tune of USD2 billion along with USD7 billion used to stabilise rupiah exchange rates amidst extraordinary conditions due to global financial market panic triggered by the rapid transmission of the COVID-19 pandemic around the world.
The current position of reserve assets is equivalent to 7.2 months of imports or 7.0 months of imports and servicing government external debt, which is well above the international adequacy standard of three months of imports, and also sufficient to implement rupiah exchange rate stabilisation measures. Rupiah exchange rate stability and appreciation, coupled with solid market mechanisms, have reduced the need for intervention measures by Bank Indonesia.
Bank Indonesia has agreed a repurchase agreement line (repo line) with the US Federal reserve worth USD60 billion
The agreement may be used by Bank Indonesia to fulfil US dollar liquidity if required. The repo line facility for Foreign and International Monetary Authorities (FIMA) has only been extended to a few central banks, thus indicating confidence in Indonesia's economic outlook and the macroeconomic policies implemented.
In addition, Bank Indonesia has also established repo line facilities with several other institutions, namely the Bank for International Settlements (BIS), worth USD2.5 billion, the Monetary Authority of Singapore (MAS), USD3 billion, as well as other central banks in the region valued at USD500 million-USD1 billion.
The agreements will strengthen Bank Indonesia’s second line of defence, encompassing Bilateral Currency Swap Arrangements (BCSA) with several other central banks, namely the People’s Bank of China (PBoC), worth CNY200 billion (equivalent to USD30 billion), the Bank of Japan (BOJ), USD22.76 billion, Bank of Korea, KRW10.7 trillion (equivalent to Rp115 trillion), and the Monetary Authority of Singapore (MAS), USD10 billion.
Bank Indonesia will continue to strengthen coordination with the Government and Indonesian Financial Services Authority (OJK) to carefully monitor the dynamics of COVID-19 transmission and the economic impact on Indonesia over time, including the coordinated policy measures required to maintain macroeconomic and financial system stability, as well as solid and resilient economic growth.
[1] Facilities that allow central banks or monetary authorities access to US dollar liquidity through the temporary exchange of securities held, such as U.S. Treasury bonds, accompanied by a repurchase agreement.
