Bank Indonesia Headquarters in Jakarta - Photo: Privacy

JAKARTA (TheInsiderStories) – Indonesia’s foreign exchange reserves stood at US$120.3 billion in May, lower $4 billion than the $124.3 billion recorded a month earlier, Bank Indonesia (BI) announced today (06/13).

The central bank noted the position of foreign exchange reserves is equivalent to financing 6.9 months of imports or 6.7 months of imports and the government’s foreign debt payments. The level was well above the international adequacy standards of around three months of imports.

“Foreign exchange reserves remain quite high even though they are lower than the position at the end of April 2019. The foreign exchange reserves are able to support the resilience of the external sector and maintain macroeconomic and financial system stability,” BI said in a statement on its website.

It said the decline in May’s foreign exchange reserves was mainly due to the use of foreign currencies to pay the government’s foreign debt and the reduced placement of foreign exchange banking at BI in anticipation of foreign exchange liquidity needs.

“This is related to the cycle of dividend payments from several foreign companies and ahead of the long Eid holiday,” it said.

BI’ spokesman Onny Widjanarko said going forward, the central bank considered the forex reserves to be adequate, supported by confidence in the stability and prospects of a good domestic economy.

It also believed that the foreign funds’ inflow to Indonesia’ financial markets will be more profound after the presidential election on April 17. BI noted that foreign capital inflows worth of Rp74.4 trillion ($6.3 billion) entering Indonesia in the first quarter (1Q) of 2019, from a year ago Rp13.9 trillion.

Previously, BI’ Governor Perry Warjiyo explained, Rp62.5 trillion of inflows went into State securities and Rp11.9 trillion put into shares. He stated: “The high inflow shows the increase of confidence of foreign investors in Indonesia.”

The foreign capital flows rise was also supported by a slackening uncertainty in the global financial market that risks developing countries, including Indonesia. The latest Federal Reserves Fund Rate (FFR) also tends to be more dovish or not aggressive in the last meeting. The same thing happened in other developed countries.

With the large foreign fund inflows coming in, he hopes will have a positive impact to maintain the exchange rate, increasing economic growth and also decreasing the current account deficit.

Warjiyo sees that economic growth in the 1Q of 2019 will be at 5.2 percent or is still consistent with the target of 5.0-5.4 percent until the end of 2019. The contributors to economic growth are private consumption, government consumption, and consumption of non-state institutions household.

The government will continue to carry out fiscal stimulus in the form of social assistance to encourage economic growth, especially to low-income people. While in terms of investment, although it has slowed slightly compared to 4Q of 2018, investment growth is predicted to increase in subsequent quarters so that it can achieve a 5.2 percent economic growth rate.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com