Bank Indonesia Sees Rupiah Withstanding Near-Term Volatility
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- 23 Oct 2024
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In the face of rising financial market volatility, Bank Indonesia remains optimistic about the resilience of the rupiah, asserting that it will withstand short-term pressures and strengthen in the long run. Edi Susianto, the executive director of monetary and security asset management at Bank Indonesia, conveyed this confidence in a recent statement, highlighting the central bank's proactive stance in managing currency fluctuations.
Susianto acknowledged that the rupiah is likely to experience heightened volatility in the near term, primarily due to external factors such as sentiment surrounding the Federal Reserve's policy rate adjustments and the upcoming U.S. presidential elections. The market's shifting expectations regarding the Fed's monetary policy have contributed to this uncertainty, particularly as investors reassess the likelihood of aggressive rate cuts.
Throughout October, the rupiah, along with other Asian currencies, has faced downward pressure. As of Wednesday, the currency fell 0.4% to 15,620 against the U.S. dollar, marking a loss of over 3% for the month. This decline prompted Bank Indonesia to intervene in the foreign exchange market for the second time in two weeks, aiming to stabilize the currency and mitigate excessive volatility.
Despite the current challenges, Bank Indonesia is optimistic about the rupiah's future performance. Susianto emphasized that the central bank's confidence is bolstered by the positive outlook surrounding Indonesia's new government and ongoing efforts to enhance the attractiveness of domestic financial assets. The central bank is prepared to step in as needed to ensure a balance between foreign exchange supply and demand, reinforcing its commitment to maintaining currency stability.
The uncertainty surrounding the U.S. elections has added to market jitters, with analysts noting that potential trade barriers could exacerbate inflationary pressures and lead to a less dovish stance from the Federal Reserve. Radhika Rao, a senior economist at DBS Group Holdings Ltd., pointed out that global developments significantly influence the movement of Indonesian assets, particularly as markets remain neutral regarding the new cabinet line-up in Indonesia.
Rao indicated that volatility in the rupiah and Indonesian rates is likely to persist in the coming weeks, especially in light of firmer U.S. economic data. This situation may compel Bank Indonesia to adopt a more cautious approach in its monetary policy discussions.
In its recent meeting, Bank Indonesia opted to keep its key interest rate unchanged at 6%, signaling a shift in focus towards ensuring the stability of the rupiah. Governor Perry Warjiyo has stated that any potential for further monetary easing will depend on the currency's outlook, inflation trends, and overall economic growth.
As Indonesia navigates these turbulent waters, the central bank's commitment to maintaining currency stability and fostering a favorable economic environment will be crucial. The interplay between domestic policies and global economic developments will continue to shape the trajectory of the rupiah in the months ahead.
In conclusion, while the rupiah faces short-term volatility driven by external factors, Bank Indonesia's proactive measures and optimistic outlook suggest a path toward stabilization and potential strengthening in the future. The central bank's readiness to intervene in the market underscores its commitment to safeguarding the currency and supporting Indonesia's economic resilience.
