Debt, Tumbling Rupiah Drags Down Indonesia’s Forex Reserves
Jakarta. Indonesia’s foreign exchange reserves shrank by $40 million last month, marking continued efforts from the central bank to prop up the persistently depreciating rupiah.
In a statement published on Friday, Bank Indonesia reported that its foreign exchange reserves stood at $107.6 billion by the end of July, from $108 billion in June.
The current figure would be enough to support the nation’s import activities for roughly seven months, but with the added burden of covering the government’s offshore loans, that time frame contracts slightly to 6.8 months, according to the statement.
Bank Indonesia executive director Tirta Segara added that the central bank was forced to tap into the reserves to pay off some offshore government debts and stabilize the rupiah, which has fallen by 8.8 percent to 13,536 per US dollar year-to-date.
“On the other side of the ledger, the increase in foreign exchange receipts from the issuance of government euro bonds was able to withstand any further decline [in the reserve],” Tirta said in a statement.
The government recently booked 1.25 billion euros ($1.36 billion) from selling euro-denominated 10-year bonds last month.
The reserves should also be resilient enough in the face of the US Federal Reserve’s interest rate hike slated to occur next month, said Aldian Taloputra, an economist at Mandiri Sekuritas.
He pointed out that past events, such as the Fed’s quantitative easing announcement in 2013, showed pressure typically hits the market in the days leading up to the actual event.
“I think the market has already priced in the interest rate hike… Right now, the market’s only waiting to see just how much the Fed will increase its interest rate,” he said, adding that he projected the market to calm down as soon as the decision on the Fed rate has been made.
Foreign investors currently hold 39 percent of government bonds worth Rp 538 trillion ($39.6 billion), according to the Finance Ministry’s Directorate of Budget Financing and Risk Management, a slight rise from 38 percent at the end of last year.
Foreign investors, who made up 43 percent of trade in the Indonesia Stock Exchange (IDX) so far this year, still booked Rp 2.9 trillion net buy into the country’s stocks, despite a 8.7 percent year-to-date decline in the benchmark index.
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