Bank Indonesia has intervened money market to prevent the weakening of Rupiah, said the official on Friday (06/12) - Photo: Pixabay

JAKARTA (TheInsiderStories) – Bank Indonesia has intervened money market to prevent the weakening of Rupiah, said the official. On Friday (06/12), the local currency closed down 0.80 percent to 14,133 per US dollar compared to previous day at 14,020 over the Greenback.

“Today BI is stabilizing (Rupiah) in the spot and DNDF (domestic non delivery forward) markets to ensure does not dropped sharply,” said executive director Nanang Hendarsah without mentioned the amount. 

He is optimistic, the weakening of the exchange rate is only temporary caused the Rupiah rate is currently still undervalued. This is inline with the current account deficit (CAD) position, which is estimated to be sloping.

He estimates that May’ trade balance will experience a significant surplus. By the end of this year, the CAD is expected to decline to below 2 percent of gross domestic product (GDP), from initial targets around 2.5 – 3 percent of GDP.

To support Rupiah stability, the central bank maintained its seven-days reverse repo rate at 4.50 percent, the Deposit Facility rate at 3.75 percent, and the Lending Facility rate at 5.25 percent. According to the governor, Perry Warjiyo, in May, the Rupiah still recorded a depreciation of around 6.52 percent compared to the end of 2019 due to deep depreciation in March.

But, he believed, the local currency will going stronger in the coming months due to various economic measures by the central bank and the government. By the end of this year, he optimism the Rupiah could be back to level 13,000 versus the American Dollar.

The rapid capital inflow into Indonesia made the Rupiah stronger below 14,000 against the US Dollar in this week. On Friday, the local currency jumped 1.49 percent to 13,850 against the US Dollar.

Investors give a positive reactions to to the new normal life in the midst of the COVID-19 pandemic and put their funds back in emerging markets, including Indonesia. The heavy inflows into the country can be seen from the auction of state bonds on last Tuesday, whose showed the offer reached Rp105.27 trillion (US$7.52 billion) from the indicative targets Rp20 trillion, which means there were 5.2 oversubscribed times.

Chief Economist of PT Bank Permata Tbk, Josua Pardede rated, the weakening of the US Dollar by 1.56 percent over the past week was mainly due to accumulation of expectations from investors regarding the reopening of the economy in various Asian countries. Most Asian currencies, he note have strengthened this week, except for the Japanese yen.

He continued, further strengthening of the Rupiah caused the investors moving their assets from the Indian market after Moody’s Investor Service downgrade the country rating from Baa2 to Baa3 and downgrading its outlook from “stable” to “negative”. Moody’s cut inline with S&P and Fitch, who each downgraded India’ rating to BBB-, after a surprising increase in November 2017.

While within the country, the strengthening of the Rupiah tends to be caused by the start of the transition to open the large-scale social distancing in a number of regions, such as in DKI Jakarta. Pardede noted, during the week, the local currency has strengthened by 4.75 percent, the highest in Asia.

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