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Forex reserves hit $100b for first time in 7 months
The central bankâs foreign exchange (forex) reserves rose above US$100 billion for the first time in seven months, providing the country with a stronger buffer against the risks of capital outflows due to the gradual pullback of US quantitative easing
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The central bank's foreign exchange (forex) reserves rose above US$100 billion for the first time in seven months, providing the country with a stronger buffer against the risks of capital outflows due to the gradual pullback of US quantitative easing.
Bank Indonesia (BI) announced Friday that its forex reserves ' used by the central bank to supply dollar demand for imports and debt payments ' touched $100.65 billion at the end of January, compared to $99.4 billion a month earlier.
The figure, which could finance 5.6 months of imports and foreign debt payments, is the highest since June.
Although seeing higher reserves, BI Governor Agus Martowardojo said on Friday that the central bank needed to stay on guard against the threat of capital outflows.
'We welcome recent good developments in Indonesia, but we still need to anticipate the impact from the pullback of the US monetary stimulus,' he warned. 'I want to highlight here that the condition of financial markets in emerging markets is still unstable.'
The surge in BI's forex reserves has bucked the trend. Some central banks in emerging markets posted declines in their reserves, as the latest string of capital outflows forced them to intervene heavily in the market to support their plunging currencies.
Central banks in Thailand and Argentina saw their forex reserves decline $5.8 billion and $6.7 billion, respectively, over the last four months, while in contrast BI gained $5 billion during the same period.
The ongoing economic troubles engulfing Thailand, Argentina and Turkey were initially feared to signal a contagion that would spread to their emerging market peers, especially in the wake of tighter global liquidity as the US Federal Reserve had begun to taper its quantitative easing policy.
However, economists say that Indonesia, with rising forex reserves and improving economic fundamentals, is now better prepared for the tighter global liquidity environment.
For Indonesian policymakers, seeing the forex reserves pass the $100 billion mark should be a 'psychological boost', according to Chua Hak Bin, an ASEAN economist with Bank of America Merrill Lynch.
'Rising reserves, alongside improvements in the current account and contained inflation, confirms that the economy has stabilized and is on the mend,' he said Friday in an email interview from Singapore.
'Indonesia is in a more resilient position compared to six months ago to withstand any threat from further Fed tapering and turbulent capital flows,' Chua added.
Nevertheless, the rise of BI's forex reserves should be viewed with caution, especially as the monthly increase was only $1.3 billion, while actually Indonesia should have seen at least $4 billion in greenback inflows due to the sale of global bonds in January.
'We may have already seen the effect of the mineral export ban on our dollar supply,' said David Sumual, chief economist at Bank Central Asia (BCA). 'This might be reflected in January's trade balance ' it could still post a surplus, but it may not be as high as the $1.5 billion we posted in December.'
