BI wants to ‘control’ rupiah in tougher stance

INDONESIA’S central bank hardened its wording around its currency interventions, saying it would look to “control” the rupiah with the dollar expected to stay strong in the coming months. 

“What we will continue to do is to control the exchange rate,” Bank Indonesia (BI) governor Perry Warjiyo said after the policy rate decision on Oct 20. “We don’t want the strengthening dollar to cause the rupiah to weaken in the middle of high global energy and food prices and cause domestic prices to rise — known as imported inflation.” 

His comments were more pronounced on Oct 20, compared to previous meetings where policymakers preferred to say they would “smoothen volatility” and “strengthen rupiah stabilisation measures”, particularly by intervening in the spot, domestic non-deliverable forward, and bond markets. 

The stronger words came as the rupiah breached the psychological level of 15,500 this week and closed at 15,573, a fresh 2.5-year low against the dollar on Oct 20. BI delivered a second consecutive half-point hike on Oct 20, saying it aimed to preempt price and currency pressures. 

“The pressure on the rupiah is not reflecting its fundamentals. It reflects the dollar strength and high uncertainty in global financial markets,” Warjiyo said. 

Meanwhile, it will take some time for BI’s “Operation Twist”- style interventions to deliver results, the governor said. The programme, which involves selling short-dated government securities and letting yields rise, has so far failed to lure significant inflows to boost the rupiah. Foreign funds have sold off US$764.5 million (RM3.61 billion) in bonds month-to-date. 

“Amid current global conditions, we need to be patient to see its effect,” Warjiyo said. He expects portfolio flows to return to Indonesia when the US Federal Reserve rate peaks, likely in early 2023. Bloomberg

  • This article first appeared in The Malaysian Reserve weekly print edition