Bank Indonesia (BI) Governor Perry Warjiyo said recently the rupiah could gain against the greenback as fundamental indicators, such as economic growth and inflation, remained positive.

“The rupiah still has potential to appreciate based on fundamental values: low inflation, high economic growth as well as a surplus in the trade balance, not to mention the foreign capital inflow,” said Perry.

The central bank has projected that the country would record a trade surplus near US$1 billion in June, as most imports in May were affected by seasonal factors, such as imports of foodstuffs to prepare for increased demand during the Idul Fitri period.

Indonesia posted a trade deficit of $1.52 billion in May, as imports grew 28.12 percent year-on-year (yoy) to $17.64 billion while exports rose just 12.47 percent yoy to $16.12 billion, according to Central Statistics Agency (BPS) data.

Based on its survey, BI projected consumer prices to rise 0.23 percent in June, bringing yoy inflation to 3.14 percent, well within its target of 2.5 to 4.5 percent.

BI also recorded Rp 7.1 trillion ($494.49 million) in foreign capital inflows from July 2 to 12, mostly into long-term sovereign bonds with a maturity period of more than 10 years.

“This shows that foreign investors’ confidence in Indonesia, particularly in the sovereign bonds market, remains strong,” Perry said.

Perry reiterated that the central bank would use available instruments to maintain the stability of the rupiah, which included its dual intervention policy in the secondary bond and monetary markets.

The rupiah traded at Rp 14,358 against the greenback on Friday, stronger than Rp 14,435 a day earlier, according to the Jakarta Interbank Spot Dollar Rate (JISDOR).

However, Asian Development Bank (ADB) Institute economist Eric Sugandi said the room for currency appreciation was limited, as external pressure remained.

“The rupiah has struggled to appreciate, because external pressures remain significant, particularly risks from the escalating trade tension between the United States and China,” said Eric.

Eric also cited several factors that drove the rupiah away from its fundamental value, such as capital outflow from emerging markets to the US — which was driven by positive economic data in the US —, the deficits in the trade balance and current account that weakened the country’s economic fundamentals as well as market expectations and perceptions.

Piter Abdullah, a research director at the Center of Reform on Economics (CORE) Indonesia, concurred, saying the room for appreciation of the rupiah remained limited considering the looming external pressure.

He acknowledged, however, that there could be a greater chance for the rupiah to appreciate if the trade balance showed signs of recovery.

BI Governor Perry went on to add that liquidity in the monetary market remained at an adequate level, with private sector firms, primarily those in the exporting industries, supplying between $500 million and $600 million per day to the monetary market.

“Thanks to corporations and exporters that have shown their confidence [in the rupiah] and have supplied the needs of the monetary market, the stability of our rupiah has strengthened,” said Perry.

Perry added that the private sector could also look to alternative measures to fulfill its foreign currency needs through swap transactions.

BI offered a 6.2 percent rate for swap transactions with a one-month maturity period as well as a 7.3 percent rate for swap transactions with a maturity period of three months, he said. “Corporations seeking to fulfill their [foreign currency] needs could do so through swap [transactions]. Corporations could contact banks, which would conduct swap transactions with BI,” said Perry.

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