JAKARTA: Bank Indonesia has intervened in the currency market to steady the rupiah after it fell to a four-year low amid a broad dollar rebound and heavy bond outflows.
The currency pared its losses to about 0.3% against the greenback as of 11.30 am yesterday. It had slipped almost 0.5% in morning trading to 15,963 per dollar, the lowest since April 2020.
Global funds withdrew some US$1.7bil from Indonesian bonds in the first quarter, the most since the three-months through September 2022.
The rupiah was heavily impacted by the depreciation, as well as strong dollar demand for dividend repatriation and foreign outflows in the bond market, said Bank Indonesia executive director for monetary and security asset management Edi Susianto.
Above-expectation March inflation data, spurred by stubbornly high food costs, also contributed to the currency’s weakness, he said.
Among traders there have also been growing concerns that president-elect Prabowo Subianto’s vast spending plans could burden the South-East Asian country’s budget. A US$29bil free lunch and milk programme for school children is expected to bloat Indonesia’s budget deficit and endanger its prized investment-grade credit ratings.
“We see short-term pressure arising from a firmer dollar, lacklustre sentiment for Indonesian bonds and strong domestic dollar demand,” said Mitul Kotecha, head of foreign exchange and emerging markets macro strategy for Asia at Barclays Plc.
Investors will be keeping a close eye on the nation’s first-quarter current account deficit, which widened by US$1.3bil in the final three months of last year. — Bloomberg