ASEAN KEY DESTINATIONS
Feb FX reserves up $2 billion as foreign fund inflows grow
Indonesia’s foreign exchange (forex) reserves rose by US$2 billion by the end of February, as the strong foreign inflows during the month offered an opportunity for the central bank to absorb dollars from the market.
Bank Indonesia (BI) announced on Friday that its forex reserves figure in February topped $102.7 billion, the highest level in nine months, compared to the $100.7 billion it recorded at the end of January.
The amount is equivalent to financing 5.7 months of imports and debt payments, well above the International Monetary Fund’s (IMF) standard of three months.
BI’s forex reserves saw a significant boost this year, after foreign investors rushed to buy Indonesian assets due to the country’s improving economic fundamentals, flooding the local markets with dollars.
According to the Indonesian Stock Exchange (IDX), foreign investors posted a net buy of Rp 11.2 trillion ($979 million) of Indonesian equities this year. In the fixed income market, foreign ownership of government bonds increased from Rp 270.5 trillion in early January to Rp 345 trillion as of March 5, data from the Finance Ministry’s debt management office shows.
The strong inflows in the fixed-income market have pushed down the yield for Indonesia’s bonds by 38 basis points in the year-to-date to 8.06 percent, the best performer among 11 countries tracked by Asian Bonds Online.
“The continuity of capital inflows in our stocks and bonds market has boosted reserves,” said Juniman, the chief economist of privately-owned Bank Internasional Indonesia (BII).
“We’re expecting a further increase in reserves this year, though the rise might not be too high in March, because the start of the election campaign period might prompt wait-and-see sentiment among foreign investors and limit inflows,” added Juniman, who predicted BI’s forex reserves would stand at a level of $106-108 billion by the end of this year.
Foreign inflows in Indonesia’s equities and fixed-income assets have propelled the rupiah, which has become Asia’s best performing currency this year.
The rupiah on Friday rose 0.3 percent to close at 11,440 per dollar, according to prices from local banks compiled by Bloomberg.
The currency, which during yesterday’s trading touched its four-month high of 11,364 against the greenback, appreciated for five consecutive weeks, the longest strengthening streak since April 2011.
BI Senior Deputy Governor Mirza Adityaswara said the strengthening was in line with fading concerns on the tapering of quantitative easing, thanks to the forward-guidance policy outlook given by Janet Yellen, the new governor of the US Federal Reserve, the US central bank.
“Tapering, once an unpredictable issue, has now become predictable [among global fund managers],” he wrote in a text message on Friday.
However, Mirza dropped hints the central bank might take steps to rein in the quick appreciation of the rupiah.
The BI senior deputy governor is known for his preference for a weaker currency. Mirza once described the appreciation of the rupiah as “not necessarily a good thing” for the economy as it could swell imports and hamper exports, ultimately enlarging Indonesia’s current account deficit.
“BI is monitoring the effects of rupiah appreciation and its impact on the REER,” Mirza said, referring to the real effective exchange rate, an inflation-adjusted value of the rupiah compared to other currencies that determines its true competitiveness.
“The monetary policy of BI will remain focused on pushing down the current account deficit,” he explained.
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