The foreign exchange reserves were up to US$123.8 billion in June from the $120.3 billion recorded in the previous month, which represented the largest monthly increase recorded since December 2017.

The latest foreign exchange reserves level was enough to finance 7.1 months of imports or 6.8 months of imports and payment of the government’s short-term external loans, which was above the international adequacy standards of about three months of imports.

BI Governor Perry Warjiyo said the increase of the foreign exchange reserves level in June signaled that Indonesia’s balance of payments position may continue to record a surplus in the second quarter thanks to the larger surplus in the capital and financial accounts compared to the deficit in the current account.

“This [the foreign exchange reserves level in June] highlighted that despite the current account deficit generally widening in the second quarter, the surplus from the capital and financial accounts was higher [than the current account deficit] and therefore should be able to cover the deficit,” said Perry in Jakarta on Friday.

A deficit in the current account signaled that a country was spending its foreign exchange liquidity beyond its means and therefore required foreign capital inflows of portfolio or direct investments — which was recorded in the capital and financial accounts — to cover the deficit.

Indonesia’s current account deficit usually widened in the second quarter of the year because of increased demand for foreign exchange liquidity, largely driven by dividend repatriation of multinational firms operating in the country.

In the first quarter of this year, balance of payments was recorded to have a $2.4 billion surplus because of a larger surplus in the capital and financial accounts, which was booked at $10.1 billion, compared to the $7 billion deficit in the current account over the same period.

Bahana Sekuritas economist Satria Sambijantoro said the increase in the foreign exchange reserves level on June was partially driven by a global bonds issuance last month.

The Finance Ministry issued a $750 million sovereign bond with a 10-year maturity and 750 million euros sovereign bond with a seven-year maturity last month, utilizing the positive momentum generated from a recent rating upgrade by Standards & Poor’s.

However, he projected that the foreign exchange reserves would continue to recover in the second half of this year because of the abundant supply of United States dollars domestically and a weak environment for the greenback globally.

“We expect the recovery of foreign exchange reserves to be on the back of a weak US dollar environment globally, which could lift emerging market currencies, including the rupiah, and on an abundant US dollar supply domestically, which translates into a lesser need for BI to supply US dollars [to the market],” said Satria in a research note.

Thanks to the adequate supply of the US dollar in the domestic market, Satria said he expected the rupiah’s exchange rate to remain stable amid a potential uptick in US dollar demand between June and July.

The rupiah was being traded at Rp 14,148 against the greenback on Friday, weaker than the Rp 14,108 seen on the previous day, according to Jakarta Interbank Spot Dollar Rate data.

On the spot market, meanwhile, rupiah’s position was slightly stronger as it was being traded at Rp 14,082 against the greenback on Friday, according to Bloomberg data.

A research director with the Center of Reform on Economics Indonesia, Piter Abdullah, said with the stable outlook on the rupiah’s exchange rate, the central bank would likely not tap into the foreign exchange reserves too often to stabilize the currency, which would also help stabilize the reserves at their current level.

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