0 Bank Indonesia’s Intervention Helps Arrest Rupiah Decline Against Dollar

Intervention by Indonesia’s central bank successfully arrested the decline of the rupiah against the US dollar on Monday. Bank Indonesia stepped into the market — selling dollars for rupiah — to meet the dollar demand by corporations operating in Indonesia. “The central bank has required PLN and Pertamina to buy dollars only through the central bank. That helps stabilize the rupiah,” Destry Damayanti, chief economist at Bank Mandiri, said on Monday. 

Destry was referring to state utility company Perusahaan Listrik Negara and state energy company Pertamina, whose cumulative demand for dollars account for up to one-third of daily currency trade volume. The rupiah traded at 9,680 against the greenback on Monday, stronger than its position a week ago when it touched 9,740 per dollar. Last week’s trading level was its weakest level since September 2009, according to data from Bank Indonesia. Central bank governor Darmin Nasution vowed to keep the rupiah trading between 9,400 and 9,600 against the dollar. 

“The rupiah exchange rate has been weakening and the central bank does not want that condition to persist long,” Darmin said last week. The governor said that a weak rupiah could boost the revenue of exporters, given prices and demand for the country’s goods and commodities were declining amid the sluggish global recovery. Those losing out from a weak rupiah are those reliant on imports, which increase in price. “BI will try to strike a balance that does not create losses for all parties,” Darmin said. 

Bank Indonesia last month increased its accumulation of foreign reserves, leaving them at $112.8 billion in December, up from $111.8 billion in November, suggesting the central bank has been reluctant to use its dollar reserves to intervene in the market. The currency performance, though, was in line with deteriorating exports due to slack global demand and surging imports based on strong domestic consumption of capital goods and fuel. Indonesia had trade deficits from June to November last year, including a record $1.54 billion deficit in October. 

That kept the current account in the red for two consecutive quarters. A current account deficit means a country is a net debtor to foreign counterparts, which puts pressure on the country’s currency. In the third quarter, the deficit stood at $5.3 billion, or 2.4 percent of gross domestic product, narrowing from a deficit of $6.9 billion, or 3.5 percent of GDP, in the second quarter. The Finance Ministry’s fiscal policy office and the central bank had expected the deficit to hit 2.4 percent of GDP in the final quarter of 2012.

source : the jakarta globe