B

ank Indonesia'€™s (BI) foreign exchange (forex) reserves declined by US$2.2 billion at the end of May as the central bank had to spend more greenbacks to stabilize the weak rupiah during the month.

BI Governor Agus Martowardojo said in Jakarta on Thursday that the central bank'€™s market operation to stabilize the Indonesian currency had caused a decline in its forex reserves, which showed a slight increase in April.

'€œThe decline was caused by our monetary operations [...] performed in response to volatility in the global market stemming from speculation that the US might scale down its stimulus, ending its quantitative easing policy sooner than expected,'€ Agus told reporters after Friday prayers in his Jakarta office.

According to the central bank, its forex reserves fell to $105 billion at the end of May from $107.2 billion a month earlier.

BI'€™s forex reserves declined in all months throughout 2013, excluding April, when it strengthened by $2.4 billion due to the government'€™s successful sale of global bonds.

BI is forced to tone up intervention to stabilize the rupiah, which faced intense pressure due to the widening oil-trade deficit due to soaring oil imports.

The pressure intensified last month, when the rupiah breached the 9,900 level, its four-year low, on May 29, only a week after the US central bank governor, Ben Bernanke, stated that he might scale down his quantitative easing policy, which had pumped fund inflows into emerging economies and helped Asian currencies strengthen.

Other currencies in the region were also affected by the sentiment from the US. In May, India'€™s rupee touched an 11-month low, the Philippine peso also hit an 11-month low and Thailand'€™s baht slumped to a four-month low, Bloomberg data show.

Analysts predicted that the pressure for the rupiah might be even higher in June, a period when the nation usually sees surging dollar demand for foreign debt payments and companies'€™ earnings repatriation.

Agus said existing forex reserves were sufficient to finance import and pay debts despite the decline.

'€œWe will keep maintaining a healthy supply and demand [of dollars] to preserve confidence,'€ he said.

BI has taken several strategic measures to safeguard the rupiah; the most recent one includes the introduction of Jakarta interbank spot dollar rate (JISDOR) in May, a new reference rate to shield the rupiah against speculators.

However, according to Bank Internasional Indonesia (BII) chief economist Juniman, the timing of JISDOR, which started publishing rupiah rates every day at 10 a.m. on May 20, '€œwas wrong'€.

'€œThe JISDOR is published daily at 10.00 a.m., but the market closes at 16.00 p.m. During the period in-between, BI must intervene heavily in the market to prevent the rupiah closing rate from deviating too much from its JISDOR rate, so that its new reference rate remains credible,'€ he said on Friday.

'€œThe presence of JISDOR is a huge cost for BI and its forex reserves,'€

Nevertheless, Juniman described BI'€™s forex reserves of $105 billion '€” just under six months of imports and debt payments '€” a '€œsafe'€ level.

BI is slated to hold its board of governors'€™ meeting next Thursday, which will be the first for the newly-appointed Agus, who took office on May 24.