Jakarta. Indonesia’s central bank will focus its efforts on improving the current account deficit and maintaining a tight monetary stance, its governor said on Wednesday.

Looking to ease market jitters, President Joko Widodo held high-level talks with senior central bank and economic ministers late on Wednesday, as the rupiah hit its lowest level since August 1998.

“The current tight condition will not be loosened if inflation and the current account deficit are not going in a good direction,” Bank Indonesia Governor Agus Martowardojo said after the Jakarta meeting. “BI will review its stance, but in general we will maintain a tight stance.”

“We don’t need to panic and worry, because this is a step toward a new normal,” Agus said, adding that the central bank would ensure dollar availability in the forex market.

The rupiah fell 0.8 percent to trade at 13,164 against the dollar, the weakest it’s been since August 1998, according to Bank Indonesia data. One-month non-deliverable forwards — which businesses or investors use to hedge against risk of the currency depreciation — declined 0.6 percent to 13,415. Indonesia’s exports contracted for four straight months through January, while the current account has been in deficit since 2011.

Foreign investors are selling Indonesian bonds and stocks, as the depreciating rupiah erodes gains in the securities.

Foreign investors sold Rp 1 trillion ($758 million) more shares than they bought on the Indonesia Stock Exchange on Wednesday, help sending the benchmark index tumbling 0.8 percent to 5,419.57. The index gained 3.7 percent so far this year, hardly making up for the rupiah’s 5.9 percent loss against the US dollar in the same period.

Yield on government bonds due 2025 fell to 7.70 percent from 7.50, according to data from Indonesia’s Bond Pricing Agency. Foreign investors sold Rp 8.3 trillion in government bonds so far this month, according to data from Finance Ministry’s Debt Management Office.

Krakatau Steel president director Irvan Kamal Hakim urged the government to enforce a 2011 law that requires all parties’ transactions within Indonesia’s territory to use the rupiah.

“We are distressed due to the weakening rupiah. About 85 percent of our expenses are in US dollars, despite some of the procurements being from the domestic market,” Irvan said on Wednesday.

Irvan said that Krakatau Steel had to buy gas in US dollars from state-owned gas distributor Perusahaan Gas Negara and Pertamina EP, the upstream gas unit of state energy firm Pertamina.
The government has been urging companies to use the rupiah, but many firms, such as commodities producers and exporters, have resisted as dollar-denominated revenues provide a natural hedge against rupiah depreciation.

Finance Minister Bambang Brodjonegoro vowed on Tuesday that the government would increase its efforts to enforce the rupiah transaction rule, beginning with hotels and port operators.

Reuters, Bloomberg & GlobeAsia

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