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Amidst COVID-19 Pandemic, Rupiah Stabilizes as Govt. Intervenes

17/04/2020

The value of Rupiah stabilized after the Indonesian government penned a US$60 billion repo facility deal with the Fed. The Indonesian Central Bank says the Rupiah is still “undervalued” and pledges to maintain the currency’s strength amidst the current global health crisis.

The Rupiah is gaining ground after weeks of devaluation amidst the COVID-19 pandemic. On March 23, 2020, the Rupiah dropped to its lowest point this year to Rp 16,575 per US dollar. By April 9, the currency rose 2.3% to close at Rp 15,880 against the dollar, the biggest gain since October 2015. 

The appreciation is in part due to aggressive intervention by the Indonesian government. Just last month, the country spent $9.4 billion of its Foreign Reserves as Bank Indonesia stepped up market intervention to stabilize the rupiah exchange rate amid heavy capital outflows.  

On top of that, Bank Indonesia also struck a $60 billion repo facility deal with the US Fed - nearly half of the Indonesia’s total reserves. BI Governor Perry Warjiyo said the deal was a show of confidence in Indonesia’s economic prospect. 

“The Fed only works with a few emerging countries, including Indonesia, on such deals,” Mr. Warjiyo said in a recent teleconferenced meeting following announcement of the deal with the Fed 

Aside from the Fed, Indonesia also 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, as well as a $2.5 billion repo line agreement with the Bank of International Settlements and another $3 billion with the Monetary Authority of Singapore, according to data from the Central Bank. 

“This will be the second line of defense other than bilateral currency swaps in case we need dollar liquidity,” Mr. Warjiyo said as quoted by the Jakarta Post, adding that the current forex reserves level was “adequate” for further market interventions. 

Currently, the country’s financial system remains relatively safe. Data from the Central Bank shows that, as of February 2020, Indonesia’s banks retain a high CAR (Capital Adequacy Ratio) of 22.27% as well as a relatively low NPL (Non-Performing Loan) of 2.79% (gross) and 1.04% (nett). Mr. Warjiyo expressed confidence that the Rupiah will continue its climb to Rp 15,000 per dollar, adding that the Central Bank was ready to take the necessary measures to safeguard the currency.