Indonesian Central Bank reported until mid-July, foreign capital inflows to Indonesia reached US$13.82 billion - Photo by Bank Indonesia

JAKARTA (TheInsiderStories) – Until mid-July, foreign capital inflows to Indonesia reached US$13.82 billion, said the central bank governor last week. This showed an investor confidence on the country’ economy showed by the strengthening of Rupiah under 14,000 against the US dollar.

Last week, a total of Rp118.5 trillion (US$8.46 billion) was poured into the Indonesian financial system through the government bonds and Rp74 trillion enter the stock market. In June, the central bank recorded the inflows worth of $9.7 billion.

Governor of Bank Indonesia (BI) Perry Warjiyo said, the flows of foreign capital is currently at a high intensity, so it would help improve the country’ capital account and balance of payments and at the end supporting the economic stability.

“This heavy foreign capital flows will create a balance of payments surplus, support our external economy and become a factor in exchange rates,” said Warjiyo in Jakarta.

The Positive perceptions on the country’ economy, he continued, have been strengthened supported by the rising the country’ ratings by Standard and Poor’s and monetary policies easing.

Otherwise, Finance Minister Sri Mulyani Indrawati expect, the capital inflow stay longer in Indonesia. Moreover, he rated, the trade war between the United States (US) and China began to subside. In addition, Indonesia’ prudent macroeconomic, fiscal and monetary policies will provide an attraction for the inflows.

Indonesian economists projected, the flow of foreign capital will continue to stretch to the domestic market until the end of the year in line with the ministry of finance’ efforts to boost investment to leverage the state revenues.

One of the heavy stimuli of the inflows was the central bank decision to cut its 7-Day Reserve Repo Rate (7-DRR) from 6 percent to 5.75 percent last week. The trend of global central banks is currently being dovish.

Foran  example, the Federal Reserve (Fed) is increasingly convinced to signal a cut in interest rates. If the Fed Fund Rate cut, is estimated the foreign capital inflows will enter the emerging market markets, including Indonesia.

However, the concern is how many times the Fed to cut its benchmark rate. Because, fundamentally US economy in the second quarter inflation was still low and the number of unemployed people was still safe.

So, if the Fed will cut its next interest rate two or three times, it will be a better sign for Indonesia’ portfolio. Therefore, the government bond market would become the primadonna followed by the stock market.

US$1: Rp14,000

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