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ndonesia'€™s foreign exchange (forex) reserves recorded their biggest monthly increase in two years in April, after the central bank absorbed dollars aggressively from the market in anticipation of high seasonal demand for the greenback in the coming months.

Bank Indonesia (BI) announced Wednesday that its forex reserves rose by US$3 billion to top $105.6 billion by the end of last month, the biggest monthly increase since April 2012.

The $105.6 billion forex reserves figure, equivalent to financing for 5.9 months of imports and government debt payments, was the highest level in a year.

Robust foreign fund inflows in the stocks and bonds market helped strengthen the forex reserves last month, but the primary factor driving the increase was BI'€™s strategy to absorb more dollars from forex swap auctions.

Outstanding forex swaps '€” a monetary instrument in which local banks can place their dollars in BI for certain period of time '€” increased by at least $1.7 billion last month, according to an analyst, who wished to remain anonymous as the central bank was yet to make the data public.

The analyst said the central bank was stacking up dollars in anticipation of heightened dollar demand for earning repatriation and foreign debt payments in the coming months.

BI spokesperson Peter Jacobs acknowledged that the utilization of BI'€™s monetary instrument, notably the forex swaps, played a role in the increase in forex reserves.

However, he argued it wasn'€™t the only factor, noting that the country also reported increases in dollar-denominated export earnings and foreign fund inflows in April.

Threats of fund outflows that might drain BI'€™s forex reserves are lurking in the second quarter, when Indonesia'€™s balance of payments will face seasonal pressure, economists say.

In the April-June period, Indonesia'€™s current-account deficit may widen to 2.4 percent of gross domestic product (GDP), from an estimated 2 percent in the first quarter this year, according to Philip McNicholas, an econo-mist with BNP Paribas in Hong Kong.

'€œThe risk of hot money outflows in a period of seasonal current-account weakness [in the second quarter] remains high, potentially hindering Bank Indonesia'€™s efforts to rebuild its still depleted forex
reserves stock,'€ he wrote in a report distributed to clients released this week.

The latest increase in BI'€™s forex reserves occurred amid a bearish trend in the rupiah, which depreciated by 1.7 percent in April '€” the worst monthly performance among Asian currencies.

Such a phenomenon showed that BI had deliberately backed off from intervening in the rupiah last month, instead opting for a weaker currency to boost exports and rein in imports, so that the country could strengthen its trade balance, according to Tim Condon, an economist with ING Group in Singapore.

'€œI attributed the rupiah'€™s performance in April to BI buying US dollars to curb appreciation pressure, after the rupiah appreciated so much in the first three months of the year,'€ Condon wrote in an email on Wednesday.