Indonesia’s Foreign Exchange Reserves Decline, BI Optimistic about Maintaining Rupiah Stability

Alvin Karunia By Alvin Karunia
4 Min Read
Cadangan Devisa RI Menurun, BI Optimis Jaga Stabilitas Rupiah
Cadangan Devisa RI Menurun, BI Optimis Jaga Stabilitas Rupiah

jlk – Bank Indonesia (BI) reported that Indonesia’s foreign exchange reserves at the end of February 2024 reached US$144.0 billion, a decrease of US$1.1 billion compared to the position at the end of January 2024, which was US$145.1 billion.

This decline is primarily attributed to the payment of the government’s foreign debt. Nevertheless, BI assesses that the foreign exchange reserve position is still adequate to support the resilience of the external sector and maintain macroeconomic and financial system stability.

The foreign exchange reserve position is equivalent to financing 6.5 months of imports or 6.3 months of imports and payment of the government’s foreign debt, and it exceeds the international adequacy standard of around 3 months of imports.

Assistant Governor and Head of the BI Communication Department, Erwin Haryono, stated that the foreign exchange reserves are capable of maintaining the value of the rupiah amid global pressure and uncertainty about the United States’ monetary policy.

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“In the future, BI also believes that foreign exchange reserves will remain adequate, supported by maintained economic stability and prospects, along with the synergies of policy responses taken by BI and the government to maintain macroeconomic and financial system stability to support sustainable economic growth,” he said in a press release on Thursday (7/3/2024).

According to BI data, the exchange rate of the rupiah against the US dollar at the end of February 2024 was at Rp14,378 per US dollar, strengthening by 0.3 percent compared to the position at the end of January 2024, which was Rp14,418 per US dollar.

This strengthening is driven by positive capital inflows along with market optimism about Indonesia’s economic recovery prospects and the improvement in Indonesia’s credit rating by the Fitch Ratings agency.

However, BI remains vigilant against the risk of rupiah depreciation due to external factors, such as an increase in US Treasury yields and escalation of geopolitical tensions.

Therefore, BI continues to intervene in the foreign exchange and government securities markets to maintain rupiah stability in accordance with market mechanisms.

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Meanwhile, some economists predict that Indonesia’s foreign exchange reserves will potentially increase in the second half of 2024, in line with the growth in exports, tourism, and foreign investment.

Chief Economist of Bank Permata, Josua Pardede, stated that the prospect of an increase in foreign exchange reserves is also supported by a more expansive fiscal policy and accommodative monetary stimulus.

“We estimate that Indonesia’s foreign exchange reserves will increase to US$150 billion by the end of 2024, in line with the increased economic activity and investor confidence,” he said to Bisnis.com.

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Josua added that adequate foreign exchange reserves will provide room for BI to lower the benchmark interest rate (BI 7-Day Reverse Repo Rate) to 5.5 percent in the second half of 2024 to stimulate credit and consumption recovery.

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