Bank Indonesia targets prevention of excess IDR volatility; FX reserves rise in August

Indonesia’s foreign reserves rose during the month of August; however, this is hardly surprising given that foreign inflows into equities and Indonesian government bonds amounted to USD 10 billion in the same period.

In lieu of this, Bank Indonesia (BI) has been building its foreign reserves, which suggests that the central bank wants to prevent excessive volatility of the rupiah, even when there is a clear push for further appreciation of the unit.

BI will continue to build up its reserves going forward. It is a step to continuously improve the economy’s macro risk profile, amid uncertainties in global financial markets. Alongside the rise in foreign reserves, the growth in short-term external debt has also been under control.

As of June 2016, short-term external debt stands at USD 41.5 billion, a tick lower than where it was in Jun15 at USD 42.9 billion (back in end-14, it stood at USD 45 billion). Meanwhile, foreign reserves-to- short-term external debt ratio is currently at circa 2.7x, way higher than a mere 2x back in mid-2013.