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Indonesia cements reserves, braces for Federal Reserve rate hike
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Delegates of the International Monetary Fund's Spring Meetings visit Bank Indonesia's booth at the IMF headquarters in Washington on Friday. The central bank is optimistic that it will be ready to tackle the risk of capital outflows due to an expected federal funds rate hike this year. (JP/Arif Gunawan S.)
T
he Indonesian central bank is ready to face potential headwinds in the market if the United States Federal Reserve increases its benchmark interest rate this year.
Bank Indonesia Governor Agus Martowardojo said BI was closely monitoring the economic improvement in the US, which possibly would be followed by a further increase in the federal funds rate (FFR) and a capital outflow [from Indonesia].
“Some say there will be two more increases, possibly in June and December, others say three or more; but overall, we agree the FFR will increase further this year,” he said on the sidelines of the International Monetary Fund (IMF) Spring Meetings on Friday.
Indonesia saw a US$12 billion surplus in its 2016 balance of payment (BoP), a turnaround from the $1 billion deficit in 2015, on the back of foreign direct investment (FDI) and portfolio investment. BI estimated the 2017 BoP would still be positive, though at a lower amount, around $3 billion to $5 billion.
As of March, Indonesia had $121.8 billion worth of foreign exchange reserves, compared to $116 billion at the end of 2016. As of April 7, Indonesia received Rp 81 trillion ($6.1 billion) in inflows since the start of the year.
“While other countries saw a decline in their reserves due to global volatility and the recent FFR increase, Indonesia on the contrary received inflows that improved our reserves,” Agus said, adding that its bilateral swap arrangement with other countries provided an additional buffer.
