Bank Indonesia enters market to defend rupiah

JAKARTA: Indonesia’s central bank intervened to defend the rupiah yesterday after the currency fell amid a wider emerging market sell-off, a senior official said.

The rupiah led losses among Asian emerging market currencies and was down 0.97% from Friday’s close at 14,610 per dollar as of 0330 GMT yesterday, the weakest since October 2015.

“We are intervening,” Nanang Hendarsah, Bank Indonesia’s (BI) head of monetary management told Reuters when asked whether BI was in the currency market to defend the rupiah.

Indonesia’s 10-year bond yield hit 7.9%, the highest since July 23, yesterday before sliding slightly. Jakarta’s main stock index fell nearly 3%.

BI deputy governor Dody Budi Waluyo told Reuters the rupiah was under pressure due to emerging market contagion from the plunge in the Turkish lira.

Analysts also point to Indonesia’s widening current account deficit – at 3% of gross domestic product in the second quarter – as a factor behind the selloff.

However, Waluyo said the current account gap is not a major cause for concern and that the central bank still had means to stabilise the rupiah.

“Of course, exchange rate stabilisation measures that have been done will continue to be implemented,” he said, explaining that BI will try to keep ahead of market developments.

Waluyo said BI could additionally intervene in both the currency and bond markets, raise interest rates or let the rupiah gradually depreciate according to its fundamentals.

BI has already increased its key interest rate three times since mid-May.

The central bank is due to hold a two-day policy meeting that ends tomorrow.

BI has spent part of its foreign exchange reserves to defend the rupiah. FX reserves declined US$13.7 billion (RM55.9 billion) from February through to July with most of that decrease seen earlier in the year.

Hendarsah said the central bank had not needed to intervene heavily as dollar demand had been relatively stable over the past month. As a result, he said the rupiah exchange rate had been well managed over that period.

The rupiah had been trading between 14,30014,400 a dollar in the past few weeks before yesterday.