Bank Indonesia (BI) on Friday announced a surprising rise in its foreign exchange (forex) reserves at the end of last month, which provided the economy with a stronger buffer against more capital outflow
ank Indonesia (BI) on Friday announced a surprising rise in its foreign exchange (forex) reserves at the end of last month, which provided the economy with a stronger buffer against more capital outflow.
The central bank's foreign exchange reserves rose by US$300 million to $93 billion by the end of August from $92.7 billion in July, after falling for three consecutive months.
'Bank Indonesia is responding [to recent economic developments] by undertaking policies to maintain foreign exchange liquidity, which will improve our situation in the future,' BI Governor Agus Martowardojo told reporters on Friday in his office.
Forex reserves are used by BI to meet demand for imports and debt payments and prevent unwanted volatility in the rupiah.
BI's forex reserves have cumulatively depleted by $19.8 billion in the first seven months this year, or 17.6 percent, which is the steepest decline among central banks in Asia.
Nevertheless, the $93 billion forex reserves were still sufficient enough to finance five months of imports and debt payments, well above safe standards of the International Monetary Fund (IMF) of three months, the central bank said.
'Bank Indonesia views this reserve position as adequate to sustain pressures on the balance of payments,' BI spokesperson Difi Johansyah said. 'Nevertheless, potential high pressures and uncertainties weighing on the global economy require preemptive measures to strengthen policy measures and resilience in the face of external shocks.'
This week, Bank of America Merrill Lynch and DBS Bank warned policy makers in Asian countries to avoid policy missteps that could lead to a similar situation experienced in the 1997-1998 financial crisis.
The former noted 'moderately high' vulnerability in Indonesia's financial sector, although Indonesia was only ranked sixth, by the US-based bank, out of the nine countries it assessed ' behind Singapore, India, Malaysia, China and Hong Kong ' in terms of the possibility of heading toward an economic crisis.
Commenting on the reports, Agus said that comparing Indonesia today to 15 years ago was not a parallel assessment. The country now had stronger economic fundamentals and better governance in its financial sector, notably in the banking industry, he noted.
'[Our banking industry] now has healthy capital, liquidity and operations ' this is information that the public should be aware of, especially at times when foreigners are now speaking negatively about Indonesia,' the BI governor said.
The increase in the forex reserves had little effect to the rupiah, which on Friday dropped 0.5 percent to 11,175 per dollar as of 4:53 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg.
'One should notice that the increase of reserves is purely 'cosmetics', as it was supported by BI's forex swap and US dollar term deposits,' said Leo Putra Rinaldy, an economist with state-run Mandiri Sekuritas, referring to the two monetary instruments that BI used to absorb greenbacks from the market.
He noted that BI had recently been quite aggressive in utilizing the monetary instruments, from which the central bank absorbed at least $8.1 billion in August, according to Mandiri Sekuritas data.
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