Bank Indonesia (BI) has revealed plans to stop speculators who might be tempted to benefit from the rupiah’s recent fluctuation against the US dollar, as the central bank signaled cautiousness over the under-pressure currency.
In an effort to stabilize the rupiah, BI would soon cap the maximum amount of non-collateral foreign exchange purchases at US$25,000 per customer per month, down from the existing $100,000, Governor Agus Martowardojo told reporters on Tuesday.
This means that any individuals or institutions that want to purchase more than $25,000 worth of greenbacks would need to report their underlying collateral, such as export or import activities, complete with their taxpayer numbers (NPWP).
BI officials said that the regulation was designed to prevent any speculative practices that might occur because of excess liquidity in the economy, as some people might be tempted to gain short-term returns by converting their funds into dollars, which have lately been on a strengthening streak against the rupiah.
“We do not want to see the short-term excess liquidity [in the economy] to be used to purchase foreign currencies without strong collateral, or other speculative practices,” BI Senior Deputy Governor Mirza Adityaswara said on Tuesday.
The central bank is now also studying the possibility of boosting the attractiveness of BI’s longer-term monetary instruments, such as nine-month or 12-month debt papers (SBI), to absorb the excess liquidity that was prone to speculative practices, Mirza added.
“This is about how we can absorb the excess liquidity, by shifting [the funds] to our longer-term monetary instruments, without altering our interest-rate policy stance,” added BI Deputy Governor Perry Warjiyo.
Lowering the limit of dollar purchases domestically will lower dollar demand domestically and prevent more speculation from happening, “but it won’t reverse the rupiah-dollar trend”, said Gundy Cahyadi, a Singapore-based economist with DBS Bank.
This is because the pressures on the rupiah were mostly driven by external factors, such as rising volatility in the financial markets caused by China’s recent move to devaluate the yuan, as well as broad-based expectations of a stronger dollar because of potential hikes in US interest rates, he explained on Tuesday.
The rupiah has fallen by around 10.5 percent this year to trade at 13,831 per dollar on Tuesday, the worst performer in the Asia-Pacific region after the Malaysian ringgit, even as the current-account deficit has narrowed to BI’s so-called “sustainable level” of 2.1 percent of gross domestic product (GDP) in the second quarter.
That compares with a deficit at a near-historic high of 4.3 percent of GDP in the same period last year.
In the press briefing, all the BI governors in attendance stated that the rupiah was “undervalued” and its steep fall had overshot its fundamentals, given the already significant improvement in Indonesia’s current-account deficit, the major worry of investors.
On Tuesday, the central bank’s board of governors decided to keep the benchmark BI rate unchanged at 7.5 percent for the sixth consecutive month.
The current benchmark rate was consistent with efforts to control inflation and stabilize the rupiah, BI wrote in its statement. Perry predicted that inflation, which hit its highest level this year of 7.3 percent in July, would fall to BI’s target range of 3 to 5 percent by the end of this year.
The decision to hold the BI rate was in line with the expectations of most economists, who have argued that BI, despite the economic slowdown, might have limited room to loosen monetary policy amid escalating pressures on the rupiah.
The Jakarta Post
