Indonesia: FX Reserves seen shrinking further – UOB
|Economist at UOB Group Enrico Tanuwidjaja gives his opinion on the recent drop in FX Reserves in Indonesia.
Key Quotes
“Indonesia’s foreign exchange reserves plunged by USD9.4bn (the biggest monthly drop since September 2011) to USD121.0bn as end-March 2020. The latest reserve level was equivalent to 7.2 months of import financing or 7.0 months of imports, and payments of government external debt, which is well above the international adequacy standard of around 3 months of imports. Nevertheless, Bank Indonesia (BI) considers that the official reserve assets position is ample to finance import and debt service payments as well as the need to stabilize the Rupiah exchange rate.”
“BI reiterated that the decline in March’s foreign exchange reserves was attributable to government external debt payments and stabilization of the Rupiah exchange rate amidst panic in the global financial market triggered by a rapid and widespread effect of COVID-19 pandemic. COVID-19 has induced capital outflow and amplified exchange rate pressures on the Rupiah, especially in the second and third week of March 2020.”
“BI views that the Rupiah exchange rate is fundamentally undervalued and is expected to move stably towards Rp15,000 per US dollar by the end of 2020.”
“That said, we might see a further decline in FX reserves on the back of the ongoing uncertainty from COVID-19 outbreak, as the central bank might continue to intervene in the FX market to prevent one-side moves against the Rupiah and also to provide liquidity.”
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