Bank Indonesia says boosting efforts to support rupiah

Bank Indonesia left its benchmark interest rate unchanged earlier this month as it pivots away from interest rates to macro-prudential measures. (EPA Images pic)JAKARTA: Bank Indonesia (BI) said it’s strengthening efforts to stabilise the rupiah, renewing a pledge to support a near record-low currency two days after the central bank’s chief abruptly resigned.“The optimisation of the monetary policy mix to maintain the rupiah exchange rate stability has been enhanced” through not only the policy rate but also other monetary instruments, Erwin Hutapea, BI’s executive director of monetary and securities management, said in a statement. The central bank is doing so in order to contain inflation and support economic growth amid rising global uncertainty, he added.Hutapea’s comments came as BI governor Perry Warjiyo’s shock resignation triggered concerns about Indonesia’s policy outlook under president Prabowo Subianto.

Both the rupiah and the country’s stocks have extended declines since the exit of Warjiyo, who had been considered a stabilising force in an economy whipsawed by the government’s populist policy agenda. “The comment today is standard, but interesting to see they will be refining monetary tools beyond policy rates,” said Wee Khoon Chong, senior Asia-Pacific market strategist at BNY. The statement affirmed the central bank’s pivot away from interest rates to macro-prudential measures, or could also mean that rates may be on hold for now, he added.Macro-prudential policy refers to a regulatory approach focusing on maintaining overall financial stability and preventing system-wide risks.

Various tools, including intervention in the foreign-exchange markets and the optimisation of monetary instruments such as BI rupiah bills, continue to be leveraged to maintain exchange rate stability while encouraging foreign capital inflows, BI’s Hutapea said. The central bank will direct future issuance of its bills to be in line with liquidity management needs, he added.BI also continues to optimise its macro-prudential liquidity incentives to boost lending to priority sectors, support growth and enhance liquidity redistribution across the financial system, Hutapea said in the statement.Under Warjiyo, BI raised interest rates by 100 basis points since May to defend the currency and lure back foreign investors. Its aggressive hikes and non-rate measures helped to s…