JAKARTA (TheInsiderStories) – Indonesia’ foreign exchange (forex) reserves rose to US$130.5 billion in May from previous month at $127.9 billion, the central bank reported today (06/08). The increase was mainly influenced by the withdrawal of government foreign debt and the placement of forex banking at Bank Indonesia (BI).
The reserves are equivalent to 8.0 months of imports and servicing of official external debt, and are above the international adequacy standard of around three months of imports, said the Bank.
BI assesses that forex reserves are able to support the resilience of the external sector and maintain macroeconomic and financial system stability. The central bank views that forex reserves remain adequate, supported by stability and a favorable economic outlook.
Assessed the economic condition, the governor, Perry Warjiyo, rated that the Rupiah was still undervalued and still had the potential to strengthen in the future, influenced by low and controlled inflation, low current account deficit, and high domestic and foreign interest rate differences. The state bond yields with 10-year tenures were 7.06 percent, while the 10-year US treasury notes yield was 0.8 percent, resulting in a 6.2 percent spread.
Then, Indonesia’ risk premium began to decline, although it had not yet returned to the position before the COVID-19 pandemic. As of June 4, the country’ five-year CDS premium fell to 126.78 basis points, but it is still high compared to CDS premium before the epidemic which is 66 – 68 basis points. He believed, after the epidemic, the CDS further to decline and support the strengthening of the Rupiah.
In addition, consumer price index (CPI) in May remained low recorded at 0.07 percent month to month, or on annual basis of 2.19 percent. Based on the Price Monitoring Survey in the first week of June, the inflation is estimated at 0.04 percent compared to prior month and on an annual basis at 1.81 percent, lower than last month’ inflation.
The low inflation is influenced by the decline in public demand in terms of income and consumption. The availability of supplies and the smooth distribution of goods and services are supported by coordination between the government and BI, both at central and regional levels.
Foreign capital inflows also increased since the second week of May. Net inflow recorded of Rp2.97 trillion ($212.15 million), Rp6.15 trillion, 2.5 trillion and Rp7.01 trillion respectively since the second week of May to the first week of June. Its predicted that with the implementation of the new normalcy policy, it will encourage economic activities, especially increasing public income.
He also sees, Indonesia’ economic growth in the second quarter to decline and increase again in the third quarter of 2020. MThe forecast for the Indonesian economy in this year needs to be revisited with various latest data developments.
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