3-10-2023 (JAKARTA) Indonesia’s central bank has taken action in the foreign exchange market to manage the supply and demand of U.S. dollars, responding to market turbulence that has driven the rupiah to its weakest level since January, as confirmed by an official speaking to Reuters on Tuesday.
Edi Susianto, Head of Monetary Management at Bank Indonesia, stated that while the increase in bond yields and capital outflows from the country remained “manageable,” the central bank is open to the possibility of buying bonds to manage yields.
“We remain present in the market to ensure a balance in FX supply and demand to build market confidence,” Edi explained, employing the phrase commonly used by the central bank to describe currency intervention.
The rupiah extended its depreciation on Tuesday, reaching its weakest level since January 6 at 15,610 per dollar. Concurrently, the benchmark 10-year bond yield rose to as high as 7.050%, the highest since March.
These movements were attributed to a shift in sentiment away from risky assets, influenced by hawkish U.S. monetary policy. Edi noted that Bank Indonesia (BI) would continue to monitor movements in U.S. Treasury yields.
Several other Asian emerging markets are also experiencing multi-month lows.
BI is scheduled to hold a two-day monetary policy meeting on October 18-19. In response to domestic inflation concerns, the central bank had increased interest rates by 225 basis points between August 2022 and January this year. However, as inflation has eased back to target levels, BI has maintained its stance at each monthly policy review since then.
