B

ank Indonesia'€™s (BI) latest raft of measures is expected to provide short-term relief to address exchange rate woes, but more time is needed to prove their effectiveness, bankers and economists have said.

CIMB Niaga treasury global sales head Sjarif Gunawan said that he expected to see results of the measures within a relatively short period of time. '€œOverall, the Sept. 30 package is more concrete and the market responded to it more positively compared with the previous one,'€ he told The Jakarta Post in an email recently.

According to Sjarif, the new package is more '€œaction-focused'€ in its nature, enabling businesspeople to implement the measures more easily. He specifically highlighted BI'€™s planned intervention in the forwards market as a concrete policy that would directly influence the market.

BI has said that the intervention aims at reducing pressures in the spot market that have hurt the rupiah by inflaming demand for foreign exchange (forex).

The intervention will begin this month and will be conducted either bilaterally or through auction. It is part of a larger package that the central bank introduced last week, as reported before.

Other measures in the package include the extension of underlying requirements for forex forward selling, the launch of new short-term monetary instruments '€” three-month BI deposit certificates (SDBI) and two-week domestic treasury notes (SBN) reverse repo '€” and a lower holding period for BI certificates (SBI).

The rupiah strengthened 0.3 percent to 14,653 per US dollar after the package was introduced on Sept. 30, signaling a positive market reaction to the policy bundle.

The appreciation continued'€”if only slightly '€” with the currency ending at 14,645 against the greenback on Friday, strengthening by 0.05 percent from Sept. 30.

Echoing Sjarif, DBS Bank Indonesia treasury and markets head Wiwig Santoso said that the BI package made it easier to exchange forex into rupiah, helping boost forex supplies.

'€œThe lower SBI holding period is a quick fix and the market will soon see the results,'€ he said in a message.

By lowering the holding period to one week from the previous one month, BI is looking to attract
foreign investors to invest in monetary instruments, triggering capital inflow.

Wiwig cautioned, however, that the full effect of the measures would take some years to be felt, as the market and businesspeople would need time to adjust to the new policies.

Meanwhile, Bank Mandiri treasury and markets director Pahala N. Mansury said that he expected to see the measures bear fruit after a month.

'€œWe'€™re working against global markets,'€ he said on Saturday, citing negative sentiment toward emerging economies with the upcoming increase of the key policy rate in the US.

Capital Economics economist Gareth Leather is convinced that more structural reform is needed, especially as Indonesia still posts a deficit in its current account.

'€œIt [the package] may provide some short-term benefits, but we still expect to see the rupiah fall further against the dollar over the next few months. A current account deficit leaves it vulnerable to outflow of global capital,'€ he said.

BI estimates that this year'€™s current account deficit will stay at around 2.8 percent of gross domestic product, lower than the 2.95 percent recorded in 2014.

Leather said that as Indonesia'€™s foreign currency debt was relatively low, the weak rupiah should instead be welcomed to boost export competitiveness. '€œIt'€™s a necessary part of the adjustment to bring the current account back down,'€ he wrote in an email.
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