Indonesia’s foreign exchange (forex) reserves rose to US$126.7 billion in October, the highest level in 20 months, driven by the government’s global bonds issuance and forex records from the oil and gas sector, Bank Indonesia (BI) announced on Thursday.
The current reserve level, which indicated a $2.4 billion increase from the previous month, is enough to support 7.4 months of imports, and 7.1 months of imports and payments of the government’s short-term debt. It was above the international adequacy standards of around three months of imports.
The Finance Ministry issued on Oct. 30 US$1 billion bonds with a 30-year maturity and 1 million Euro ($1.107 million) bonds with a 12-year maturity as investors seek high-yield assets from emerging markets, including Indonesia. Improved political stability from President Joko “Jokowi” Widodo’s second-term inauguration and the appointment of the Indonesia Onward Cabinet also spurred positive sentiments.
The central bank deemed the current reserve level strong enough to support the resilience of the external sector as well as maintain macroeconomic and financial system stability, BI spokesman Onny Widjanarko said in a statement. The outlook for the reserve going forward is positive, he added.
“Going forward, BI views the foreign exchange reserve as adequate, supported by stability and a positive outlook of the economy.”
Center of Reform on Economics (CORE) Indonesia research director Piter Abdullah said the increased foreign exchange reserve level would give the central bank more ammunition to fight against the rupiah’s instability, which he did not foresee in the short term.
“Currently, the threat of exchange rate volatility is relatively low,” Piter said. “The sluggish outlook for global growth, which was responded by a more dovish monetary policy from central banks around the world, implied that greater capital would flow to developing countries, particularly those that offer higher returns.”
With such an outlook, he went on to add that “it’s a matter of time” for the rupiah to strengthen to below 14,000 against the greenback. As of Thursday, the rupiah was being traded at 14,040 to a US dollar, according to Jakarta Interbank Spot Dollar Rate (JISDOR) data, compared to 13,992 per dollar a day earlier.
Piter further added that the rupiah’s relative stability would also mean less intervention by BI in the market and, therefore, would open the doors for a further build-up of the foreign exchange reserve in the remaining months of the year. He projected that the foreign exchange reserve would reach between $128 billion and $129 billion by the end of 2019.
“Demands to use the foreign exchange reserves to stabilize the currency would be minimum, while on the other hand, they will only be used to pay for [the government’s] debt,” Piter said.
The country’s forex reserves normally increase in the final months of the year as the government frontloads bond issuances as part of the following year’s budget, he added.