Indonesia central bank gov commits to loose policy, says FX reserves enough for stability

JAKARTA: Indonesia's central bank governor reaffirmed a commitment to keep policy loose to support an economic recovery and said it has enough foreign exchange reserves to guard the rupiah exchange rate.

In a pre-recorded remarks for a Fitch Ratings' seminar on Wednesday, Governor Perry Warjiyo said Bank Indonesia (BI) "will not hesitate to intervene" to guard the rupiah against external shock, using its so-called "triple intervention" in the spot, domestic non-deliverable forward and bond markets.

The rupiah has been falling in the past month against the US dollar on the back of capital outflows triggered by rising US treasury yields. It dropped by as much as 0.65% on Wednesday to 14,564 per dollar, the weakest since Nov. 3.

"Our exchange rate basically and mostly will be determined by market mechanism, supply-demand, but the central bank ensures the market mechanism is continuing to be consistent with the fundamentals," he said.

"We provide commitment to ensure rupiah will be stable despite increasing uncertainty in the global market," he added. "The rupiah exchange rate is important to support economic recovery."

He said foreign exchange reserves, which hit a record high of $138.8 billion at end February, were "more than ample" to ensure external stability.

Warjiyo reiterated that all of the bank's tools, including monetary, macroprudential and payment system policies, were currently geared towards accelerating an economic recovery.

BI has cut interest rates by a cumulative 150 basis points and pumped more than $50 billion into the financial system to help Southeast Asia's largest economy weather the coronavirus pandemic.

The economy was on track to grow by 4.3% to 5.3% this year and 5.2% next year, after GDP contracted 2.07% last year, he said.

The governor's remarks came a day after a sovereign bond auction attracted the lowest bids since April amid weak foreign demand.

Warjiyo reiterated in the seminar that BI has an outstanding agreement with the government to become a standby buyer in auctions until end-2022 and that its special arrangement of direct fiscal deficit financing was a one-off policy in 2020 that will not be repeated.