The Jakarta Post
The rupiah has reached its strongest level since mid-March, appreciating nearly 3 percent on Thursday against the United States dollar amid hopes that a vaccine for COVID-19 is developed and central banks’ pledges to hold interest rates to support battered economies.
Indonesia’s currency stood at Rp 14,881, appreciating 2.7 percent against the greenback at 4:46 p.m. Jakarta time to emerge from this year’s low of Rp 16,625 amid global recession risks. The rupiah once depreciated by as much as 18 percent this year before appreciating to the current level.
Bank Indonesia’s (BI) Jakarta Interbank Spot Dollar Rate (JISDOR) showed the currency strengthening to Rp 15,157 per dollar from Rp 15,415 on Wednesday.
“We decided to hold [the interest rate] in the near term to prioritize maintaining the currency level,” BI Governor Perry Warjiyo told the House of Representatives Commission XI overseeing financial affairs on Thursday. “We are confident that the rupiah will further strengthen.”
The central bank decided to hold its benchmark interest rate this month at 4.5 percent after a 50 basis points (bps) cut in total in February and March.
“The rupiah appreciation is related to the US Federal Reserve’s policy on Wednesday to hold its interest rate at the zero percent to 0.25 percent range,” Bank Permata economist Josua Pardede told The Jakarta Post on Thursday. “In addition, biotechnology company Gilead said the development of its proposed COVID-19 vaccine was running well and that the drug was proven to cure at least 50 percent of the patients [who tested it].”
A top US infectious diseases official said Gilead Sciences’ experimental antiviral drug remdesivir would become the standard of care for COVID-19 after early clinical trials showed it helped patients recover more quickly from the illness, Reuters reported on Wednesday.
On the same day, Fed officials said in a unanimous statement that it “will use its tools and act as appropriate to support the economy” and pledged to keep the interest rate near zero until the US economy returns to normal.
Perry said further appreciation of the rupiah would be supported by this year’s lower current account deficit (CAD). The central bank expects the first quarter CAD to be below 1.5 percent and stay below 2 percent throughout the year, down from BI’s earlier projection of 2.5 to 3 percent.
Furthermore, a yield differential in government debt papers between Indonesia and other countries was still attractive for foreign investors, Perry said.
“This will attract capital inflow into Indonesia,” he added.
By early May, BI will have injected a total of Rp 503.8 trillion in additional liquidity into the financial system to help cushion the economic impact of the pandemic and strengthen the rupiah as part of its quantitative easing measures. This includes BI’s bond buying worth Rp 166.2 trillion from foreign investors in the secondary market.
The Jakarta Composite Index (JCI) jumped Thursday by 3.26 percent, led by blue chip stocks such as those of state-owned Bank Mandiri, energy company PT Medco Energi and state-owned toll operator PT Jasa Marga. Foreign investors bought around Rp 431 billion (US$28.7 million) worth of stocks more than they sold.
As of April 23, however, foreign investors had sold Rp 159.6 trillion worth of Indonesian assets including bonds, stocks and BI certificates, according to Finance Ministry data.
The government had successfully raised Rp 221.4 trillion from government bonds by the end of March. This is in addition to a $4.3 billion dollar-denominated bond sales in the US and Rp 11.38 trillion in bond sales at a greenshoe option bond auction on Wednesday, among other debt papers.
It would sell Rp 856.8 trillion worth of bonds in the second quarter through to the end of the year to cover its widening budget deficit, Finance Minister Sri Mulyani Indrawati said.
The country’s financial markets have started to recover since a slump in March as foreign investors sold Indonesian assets over fears of COVID-19.