(Bloomberg): Indonesia's fiscal and monetary policies are working together to cushion the economy from a rising dollar, with the central bank signaling a willingness to intervene more aggressively to support the rupiah. He said he is showing his approach.
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Finance Minister Sri Mulyani Indrawati said in an interview on Bloomberg TV on Thursday, referring to Bank Indonesia's head of policy, Finance Minister Indrawati, “that we can adjust our macro stance to adapt to this new level of pressure.” , working very closely with Governor Perry.” .
Speaking on the sidelines of a meeting of the International Monetary Fund and the World Bank Group in Washington, D.C., the prime minister said Indonesia is focused on ensuring fiscal policy acts as an “effective and reliable shock absorber.” said.
Governor Perry Warjiyo said in a statement from DC that the BI, whose primary mission is to ensure currency stability, will also continue to support the rupiah “through currency interventions and other necessary measures.” Hours later, the central bank announced it was intervening “more boldly” in foreign exchange markets.
The comments came as news of Israel's retaliatory attacks on Iran roiled markets, pushing currencies including the rupiah to multi-year lows against the dollar on Friday. Indonesia's currency has been the hardest hit in Asia this month, with a decline of more than 2.5% in April to its lowest level in four years.
The rupiah has fallen above the key level of $16,000 against the US dollar for the first time since 2020, prompting BI to step up its market interventions to stem the decline. It is also increasing pressure on the central bank to further raise the benchmark interest rate on April 24th.
Barclays economist Brian Tan said in a note on Friday: “The level of concern is clear, suggesting an increasingly strong whole-of-government response and increasing risk of a significant 50bps rate hike (to 6.5%). “It has become,” he said.
Barclays said if the BI remains at 6%, it is likely to sound hawkish and would signal the possibility of future rate hikes. So far, only six of the 21 economists surveyed by Bloomberg expect the central bank to raise interest rates by 25 basis points on Wednesday, while the rest expect them to remain unchanged.
The governor, who surprised markets by tightening monetary policy in October amid a plunging rupiah, said earlier this week that the central bank would always be present in the market. In a statement on Friday, he said BI will manage foreign capital inflows in a market-friendly manner, stressing the importance of exchange rate stability for the country's resilience.
Southeast Asia's biggest economy told state-owned enterprises on Thursday to refrain from buying large amounts of dollars for imports or debt repayments to avoid further pressure on the rupiah. Natural resource exporters were also reminded to follow rules for repatriating dollar earnings to strengthen the country's foreign exchange reserves.
Indrawati said in an interview in Washington, D.C., that while a stronger dollar could boost export earnings, it also risks increasing inflationary pressures through imports.
financial outlook
Questions about the incoming government's fiscal policy also continue to put pressure on the rupiah, with foreign investors avoiding Indonesia's bond market over concerns about President-elect Prabowo Subianto's free lunch program.
Without a clear financing strategy, the program could jeopardize Indonesia's debt burden and threaten its investment-grade sovereign rating, which was recently affirmed by Fitch Ratings and Moody's Ratings.
Indrawati, who ends her term as finance minister in October, said the budget deficit would remain below 3% and Indonesia could maintain 5% economic growth this year despite a prolonged high interest rate environment.
“Fiscal policy that adapts to the many structural issues while at the same time maintaining prudent principles will be very important,” Indrawati said.
–With assistance from Claire Jiao and Ben Sills.
(Adds statement from Bank Indonesia and comments from economist.)
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