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Jakarta Post

BI expects rebound in foreign capital flows later this year

  • Adrian Wail Akhlas

    The Jakarta Post

Jakarta   /   Wed, April 8, 2020   /   06:19 pm
BI expects rebound in foreign capital flows later this year Bank Indonesia Governor Perry Warjiyo (Antara/Puspa Perwitasari)

Bank Indonesia (BI) expects foreign capital inflows to pick up in the fourth quarter this year as the COVID-19 threat is expected to subside.

The central bank is seeing signs that foreign investors will start to buy Indonesian assets in the fourth quarter as many predictions show that COVID-19 will subside by year-end, BI Governor Perry Warjiyo said.

"We believe that in the future capital portfolios will pour into the country, but it will be volatile in the second quarter and this will continue into the third quarter,” Perry told House of Representatives Commission XI overseeing financial affairs via teleconference on Wednesday.

“We have seen signs of capital inflows and we hope that it will continue to increase, in line with the decline of global uncertainty as it will help the rupiah to strengthen in the days ahead,” Perry told lawmakers.

Read also: BI sees signs of slowing capital outflow as stimulus packages calm markets

The rupiah has lost around 17 percent of its value against the greenback this year as investors rushed to sell riskier assets and flock to safe-haven assets amid fears over the rapid spread of COVID-19. As of 3:50 p.m. Jakarta time, the rupiah had depreciated 0.3 percent to Rp 16,250 per US dollar.

Foreign investors had sold Rp 148.76 trillion (US$9.04 billion) in Indonesian assets as per April 1, including Rp 135.08 trillion in government bonds and Rp 9.71 trillion in Indonesian shares, BI data shows.

The central bank has purchased Rp 172.5 trillion in government bonds, including Rp 166.2 trillion from foreign investors in the secondary market to stabilize the rupiah.

Indonesia’s foreign exchange (forex) reserves dropped $9.4 billion last month to $121 billion as the central bank stepped up market intervention to stabilize the rupiah exchange rate amid the heavy capital outflows.

Read also: Rupiah may slide to Rp 20,000 per US dollar in worst-case scenario

The central bank has agreed on a deal with the US Federal Reserve on a repurchase agreement (repo) facility worth US$60 billion that can be used to boost dollar liquidity.

“This will be the second line of defense other than bilateral currency swaps in case we need dollar liquidity,” Perry said in a teleconferenced meeting on Tuesday, adding that the current forex reserves level was “adequate” for further market interventions and the central bank would use the second line of defense if necessary.

BI has a $30 billion bilateral swap agreement with China, $22.7 billion with Japan, around $7 billion with Singapore and an undisclosed amount with Australia and other central banks to buffer the nation’s economy in the COVID-19 battle.

Furthermore, the central bank has also sealed a $2.5 billion repo line agreement with the Bank of International Settlements and another $3 billion with the Monetary Authority of Singapore.