Bank Indonesia Intensifies Intervention to Stem Rupiah’s Fall
(Bloomberg) -- Bank Indonesia is intensifying its intervention in currency markets to keep the rupiah from depreciating further, as renewed social restrictions to stop coronavirus from spreading in Jakarta threaten to weigh on the economy.
The rupiah fell as much as 0.6% on Friday to 14,950 per dollar, its lowest level since May 12. That led Bank Indonesia to intervene in the foreign exchange spot market, as well as in the domestic non-deliverable forwards market through brokers, to prevent further declines, according to Nanang Hendarsah, the bank’s executive director for monetary management.
“Investors increasingly doubt the prospect of an economic growth recovery that was initially expected in the fourth quarter,” said David Sumual, chief economist at PT Bank Central Asia. The rupiah will remain under pressure at around 15,000 per dollar given the uncertain duration of Jakarta’s partial lockdown, he said.
Tighter movement restrictions will be imposed in Jakarta starting Sept. 14 -- what the provincial government refers to as an “emergency brake” -- to prevent the health system from collapsing amid a surge in Covid-19 infections.
Indonesia’s economy shrank for the first time in more than two decades in the second quarter, and the government recently cut its forecast for this year to -1.1% to 0.2% growth. The country recorded its largest daily virus tally Thursday, bringing its total caseload to 207,203, with 8,456 fatalities, the most in Southeast Asia.
The rupiah is down more than 7% against the dollar so far this year, the worst performer in Asia, including almost 1% since the movement restrictions were announced late Wednesday. The recent sell-off in the currency and in Indonesia’s stock market also triggered parliamentary concerns.
“We hope that Bank Indonesia will also maintain stability in the financial sector because we are concerned that the central bank’s efforts will be in vain if there is no good coordination on all fronts,” Said Abdullah, chairman of parliament’s Budget Committee, said at a hearing Friday with the finance minister and Bank Indonesia governor.
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