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Market intervention best way to defend rupiah: Expert
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A money changer at the ITC Kuningan shopping center exchanges US dollar banknotes on Feb. 28. (Antara/Puspa Perwitasari)
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o:p>As the rupiah faces pressure from monetary tightening in the United States, the best way to defend the currency is by sacrificing foreign exchange to intervene in the market, says Ari Kuncoro, a professor of economics at the University of Indonesia (UI).
Bank Indonesia had two basic options to keep the rupiah stable – increasing the reference rate and intervening in the market by releasing foreign exchange, Ari said in Jakarta on Thursday.
He predicted that pressure on the rupiah would continue, because – in addition to the Federal Reserve's plan to increase its reference rate four times this year – the rupiah was hit by negative sentiment from the US plan to impose import tariffs of 25 percent on steel and 10 percent on aluminum.
Ari called on the Indonesian government to prepare for a trade war, as countries like China, Canada and EU member states had voiced concern over the US policy and were preparing retaliatory measures.
“If other countries follow the EU's countermeasures, then a trade war would break out,” Ari said, adding that the resignation of presidential economic adviser Gary Cohn on Wednesday indicated stubbornness on the part of US President Donald Trump.
While BI was sacrificing its reserves to defend the rupiah, he called on the government to resort to diplomacy in response to the US government’s trade plans.
“Diplomacy is important, and we need to work with the EU, India and China to protest the US. If that strategy works well, the current currency turmoil will last only a month," he said. (bbn)
