Bank Indonesia intervenes to defend rupiah amid major slump

Bank Indonesia intervenes to defend rupiah amid major slump

05/09/18

Joshua Lay, Business and Policy Researcher

Bank Indonesia, the country’s central bank, is intervening in currency markets to defend the value of the rupiah amid a major slide in its value, the Straits Times reports.

The rupiah has depreciated by more than 7 per cent since January, down to its lowest level since the 1998 financial crisis. The new Bank Indonesia Governor Perry Warjiyo, in post since 24 May, said the depreciation was caused by a combination of both domestic conditions and a negative external environment, the Jakarta Post reports.

Warjiyo pointed to domestic corporations and importers purchasing rupiah to pay debts and increase imports. Externally, the value of the rupiah has been driven down by speculation that the US Federal Reserve will increase interest rates, the ongoing fallout from the US-China trade war, and fears of emerging-market contagion amid ongoing currency crises in Argentina and Turkey.

Bloomberg reports that Bank Indonesia is turning to more innovative methods to combat the rupiah’s slide, after four interest-rate increases failed to curb the depreciation. Among other measures, the bank plans to introduce new financial hedging tools and a new benchmark rate for interbank lending called the Indonia, as well as step up scrutiny of dollar buyers to ensure purchases are backed by underlying assets.

Governor Warjiyo will join Asia House corporate members on Friday 14 September for an exclusive private briefing as part of the Asia House New Global Trade Order series, where he will speak on Bank Indonesia’s responses to the ongoing currency crisis and the strategies to cope with the economic uncertainty.