Bank Indonesia is encouraging increased inflow through the Bank Indonesia Rupiah Securities (known as SRBI) instrument to cover outflows from Government Securities (known as SBN) and stocks, and continues to purchase SBN on the secondary market.

Jakarta (Indonesia Window) – The Governor of Bank Indonesia (the central bank), Perry Warjiyo, expressed his optimism regarding the rupiah exchange rate prospect.

In his statement following a limited meeting chaired by Indonesia’s President Prabowo Subianto at the Merdeka Palace, Jakarta, Perry stated that the rupiah is currently undervalued and has the potential to strengthen in line with the strength of national economic fundamentals.

"The Coordinating Minister previously stated that our fundamentals are strong. Growth is very high, at 5.61 percent, inflation is low, credit is also growing strongly, and foreign exchange reserves are strong. These fundamentals indicate that the rupiah should be stable and tend to strengthen," he said on Tuesday (May 5).

Perry emphasized the existence of short-term pressure on the rupiah triggered by global and seasonal factors. In addition, seasonal factors such as the need for foreign exchange for dividend repatriation, debt payments, and the needs of Hajj pilgrims also increase demand for dollars.

"The global factors causing this short-term exchange rate pressure are first, high oil prices, second, high US interest rates. The 10-year US Treasury yield is now 4.47 percent. Likewise, the dollar is strengthening," he noted.

In response to these conditions, Bank Indonesia reported to President Prabowo regarding seven strategic steps to strengthen the rupiah in the future.

The first step is to strengthen intervention in the foreign exchange market, both domestically and internationally, to stabilize the Indonesian currency.

"Our foreign exchange reserves are sufficient to stabilize the rupiah exchange rate," he explained.

The second and third steps focus on strengthening capital flows and fiscal-monetary coordination.

According to Perry, the Indonesian central bank is encouraging increased inflows through the Bank Indonesia Rupiah Securities instrument to cover outflows from Government Securities (locally known as SBN) and stocks, and continues to purchase SBN on the secondary market.

"We have purchased 123.1 trillion rupiahs in government securities (SBN) from the secondary market year-to-date. We will coordinate, including allowing the Minister of Finance to handle buybacks and other matters. There will be very close coordination between the fiscal and monetary authorities," the Bank Indonesia governor said.

The fourth and fifth steps include maintaining loose bank liquidity and limiting dollar purchases in the domestic market.

"Previously, we reduced the limit to 100,000 dollars per person per month to 50,000 dollars per person per month. We are coordinating directly with the Financial Services Authority to strengthen this," he added.

The sixth and seventh steps involve strengthening intervention in offshore markets and increasing oversight of banking and corporate activities.

Furthermore, supervision is being tightened through coordination with the Financial Services Authority (OJK) to ensure financial system stability is maintained.

"We are particularly looking at corporate banks with high dollar purchasing activity. We are sending supervisors there in coordination with Ms. Frederika Widyasari, Chairperson of the OJK, to ensure financial system stability is maintained," the governor said.

These steps underscore the proactive stance of the government and monetary authorities in maintaining rupiah stability.

Amidst global pressure, Indonesia has not only survived but also prepared momentum for more solid strengthening in the future.

Reporting by Indonesia Window