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BI focused on 'stability' as US debt worries roil markets
Indonesia’s central bank is keeping a close eye on negotiations in the United States and says it is ready to intervene in the markets should that be necessary to guard the rupiah.
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Bank Indonesia Governor Perry Warjiyo answers questions from journalists following the central bank’s monthly monetary policy meeting in Jakarta on May 25, 2023. (Bank Indonesia YouTube channel/Screenshot)
B
ank Indonesia (BI) is bracing for the economic fallout of unresolved debt ceiling negotiations in the United States with measures aimed at keeping the rupiah stable while waiting to see whether a deal might result in US budget cuts.
Following its monthly monetary policy meeting on Thursday, BI Governor Perry Warjiyo elaborated that the move involved two toolsets, known as triple intervention and a twist operation.
“The focus is on strengthening rupiah exchange rate stabilization, so that low imported inflation remains low and the creeping effect of financial market uncertainty can be mitigated,” Perry said in a press conference.
Triple intervention consists of tools to influence the spot market, the domestic nondeliverable forward market and the bond market, all intended to keep the rupiah trading around a desired level against other currencies.
A twist operation, on the other hand, is a stabilization measure through selling short term bonds, of which BI holds some Rp 1.4 quadrillion (US$94 billion), to lift the yield of short-term bonds without pulling the gains on long-term bonds upward, thus attracting inflows and strengthening the rupiah.
The negotiation between the governing Democrats and the Republican-led House of Representatives in the US has been stalled for weeks, but it still widely expected to be concluded by early or mid-June. The longer the talks drag on, the more uncertainty they cause for markets.
