B

ank Indonesia (BI) recorded a slight increase in foreign exchange (forex) reserves in October because of higher export proceeds and rising forex deposits at the central bank.

According to BI data published on Friday, forex reserves climbed to US$112 billion by the end of October, up from $111.16 billion reported in September.

BI claims the amount of reserves will be sufficient to cover 6.6 months of imports or 6.4 months of imports and payment of the government'€™s external debt.

The central bank said in a statement that the latest reserves figure was a result of higher export proceeds, as well as rising forex deposits of lenders that were kept at BI.

BI added that the total amount of exports proceeds and deposits was higher than the amount of funds spent by the government to cover its external debt and BI'€™s own intervention in the forex market.

October data on exports, forex deposits and external debt has not yet been published.

Juniman, an economist at Bank Internasional Indonesia (BII), predicted that capital inflow in the bond market had also played a role in driving forex reserves higher in October.

'€œCapital inflow was recorded at Rp 12.3 trillion [$1.01 billion] as investors were caught up in the euphoria of the new administration,'€ said Juniman, who goes by one name only.

Despite the increase, Bank Central Asia (BCA) economist David Sumual said the central bank and government must jack up forex reserves again to reach a '€œsafer'€ level as the economic situation was bound to change in the near future.

'€œWe still have to face the possibility of a higher interest rate in the US next year. It will affect our economy when that happens and I don'€™t think our forex reserves are strong enough to absorb potential shocks in the future,'€ he said during a telephone interview.

David added that current forex reserves were only around twice the total amount of short-term external debt and that they should be increased to between three and four times the debt.

The latest external debt statistics show that the amount of short-term external debt reached $49.35 billion in August.

To generate more reserves, David said the government and BI should offer wider varieties of financial instruments and incentives to attract foreign funds.

Meanwhile, Standard Chartered Bank Indonesia economist Eric Sugandi said an increase in subsidized fuel prices may trigger an inflow of foreign funds, boosting forex reserves.

'€œThe adjustment in the fuel price is something that foreign investors are eagerly awaiting, as it will represent structural reform in our economy. A higher price may drive them to invest and the rupiah may strengthen against the US dollar,'€ he said.

However, Eric also acknowledged the risk of capital outflow, sparked by an uptick in the US interest rate.

'€”JP/Tassia Sipahutar