Indonesia’s foreign exchange reserves experienced an increase in June. However, in the latest release from Bank Indonesia, Indonesia’s foreign exchange reserves at the end of July 2022 decreased by US$ 4.2 billion compared to the previous month.
Based on BI, Indonesia’s foreign exchange reserves in July 2022 were US$ 132.2 billion.
BI in its official statement, Friday (5/8/2022), said “The decline in the position of foreign exchange reserves in July 2022 was influenced, among other things, by the payment of government foreign debt and the need for stabilization of the rupiah exchange rate in line with the high uncertainty in global financial markets.”
However, foreign exchange reserves are still relatively high. Equivalent to financing 6.2 months of imports or 6.1 months of imports and servicing of government external debt, and above the international adequacy standard of around 3 months of imports.
“Bank Indonesia assesses that foreign exchange reserves can support external sector resilience and maintain macroeconomic and financial system stability.
Going forward, Bank Indonesia views that foreign exchange reserves will remain adequate, supported by maintained economic stability and prospects, along with various policy responses to maintain macroeconomic and financial system stability to support the national economic recovery process,” concluded BI’s statement.
Furthermore, the decline in foreign exchange reserves was the largest since March 2020 or the beginning of the coronavirus disease (Covid-19) pandemic.
At that time, the rupiah exchange rate fell to Rp. 16,600/US$ made BI intervene massively, and foreign exchange reserves fell to US$ 9.4 billion.
The same thing seems to have happened last month, although the weakening of the rupiah was not as severe as at the beginning of the pandemic. Last July, the rupiah touched Rp 15,035/US$ which was the weakest level in more than 2 years. BI also intervened again.
As is known, BI implemented a triple intervention policy to stabilize the rupiah exchange rate. Interventions are carried out in the spot market, domestic non-deliverable forward (DNDF), and the Government Securities (SBN) market.
The big pressure on the rupiah came from the external, namely the US central bank (The Fed) which was very aggressive in raising interest rates.
The Fed started raising interest rates last March and continues to do so at every monetary policy meeting.
Last June, the Fed raised its benchmark interest rate (Federal Funds Rate (FFR) by 75 basis points, the biggest increase since 1994. The Rupiah at that time did experience a weakening, but not too much.
The intense pressure on the rupiah only emerged in July when the Fed was speculated to be raising interest rates by 100 basis points due to inflation which is still showing no signs of peaking.
The rupiah also slumped, and for a long time moved near Rp. 15,000/US$. The intervention from BI is more visible if you look at the movement of the rupiah in the non-deliverable forward market, which is quite far above the psychological level, but in the spot market, it is still below it.
Luckily, the pressure on the rupiah eased after the Fed did not raise interest rates by 100 basis points, but by 75 basis points to 2.25% – 2.5% on Thursday (28/7/2022) early in the morning Indonesian time.
The rupiah was successful, strengthened, and stayed away from Rp. 15,000/US$. However, in the future, pressure on the rupiah could increase, because the Fed will continue to raise interest rates.
