Jakarta (Indonesia Window) – Indonesia’s foreign capital inflows continued in the form of portfolio investment, reaching net inflows of 2 billion U.S. dollars from July to August 16, 2021, according to central bank Bank Indonesia (BI).

"The uncertainty of global financial market has decreased slightly in line with the improving outlook of the world economy," said BI’s Governor Perry Warjiyo in the monthly board of governors meeting here, Thursday (Aug. 19).

According to him, that condition has boosted global capital inflows into developing countries, including Indonesia, and has supported the strengthening of currencies in various countries.

The realization of economic growth in the second quarter of 2021 in those countries showed continued improvement, supported by vaccination acceleration and policies.

"The continued economic recovery in the United States, Europe and China is expected to support the global economy prospect forward," said Perry.

This is confirmed by such early performance indicators in July 2021 as manufacturing Purchasing Managers' Index (PMI), consumer confidence, and retail sales in those countries which remain resilient.

Perry explained that world’s trade volumes and commodity prices are also predicted to continue to increase, thus supporting the strong export performance of developing countries.

As a result, Indonesia’s rupiah exchange rate also managed to strengthen 0.89 percent on average and 0.63 percent point-to-point on August 18, 2021, compared to July 2021 level, due to increased inflows of foreign capital into the domestic financial market.

However, Perry noted that until August 18, 2021, rupiah was still depreciating around 2.24 percent on a calendar year, or year to date (ytd) basis compared to the end of 2020.

The decline in rupiah exchange rate was relatively lower than those of other developing countries, such as the Philippine peso, Malaysian ringgit and Thai baht.

Reporting by Indonesia Window