Bank Indonesia to announce new policy to prop up rupiah

The rupiah saw its steepest weekly drop in almost two years amid worsening growth and signs that the US will raise interest rates this year.
The rupiah saw its steepest weekly drop in almost two years amid worsening growth and signs that the US will raise interest rates this year.PHOTO: REUTERS

Easing of forward dollar selling rules and an exporter tax incentive in the plan

JAKARTA • Indonesia's central bank will announce a new policy package next month to support the rupiah, a central bank official said yesterday, even as the currency completed its steepest weekly drop in almost two years amid worsening growth and signs that the United States will raise interest rates this year.

The policy plan will include a relaxation of requirements on forward dollar selling and a tax incentive to exporters to keep their dollars onshore, said Bank Indonesia's executive director for monetary and economic policy, Mr Juda Agung.

The plan will also aim to increase onshore foreign exchange supply for spot and forward transactions.

The rupiah is the second-worst- performing currency in emerging Asia after the ringgit, having lost 18 per cent against the US dollar so far this year. It was trading at 14,677 a dollar at 3pm Singapore time yesterday, having hit a new 17-year low of 14,700 earlier in the day.

Overseas investors pulled US$104 million (S$148 million) from Indonesian shares in the three days to Wednesday, set for an 11th week of outflows, exchange data shows.

The Indonesian Parliament's finance panel cut the growth estimate in the 2016 Budget to 5.3 per cent, from 5.5 per cent, on Tuesday.

A gauge of US dollar strength rose to near a six-month high after Federal Reserve chair Janet Yellen on Thursday said raising interest rates this year "will likely be appropriate".

Bank Indonesia has been intervening heavily in the currency market. Its foreign exchange reserves have decreased by US$12 billion (S$17.1 billion) since February to this week. Indonesia's economy grew an annual 4.67 per cent in the second quarter - the slowest in six years.

Finance Minister Bambang Brodjonegoro had expressed hope that the economy can still expand by up to 5 per cent this year as the government has met only 60 per cent of its spending target for the year.

Bank Indonesia is in talks with the finance ministry to lower the tax that exporters have to pay on bank interest should they deposit their money in local banks, Mr Agung said. Currently, the tax rate on bank interest is 20 per cent.

"We have three strategies right now for our policy: strengthening monetary operation, increasing supply-demand of foreign exchange (transaction) and strengthening our foreign exchange reserves," Mr Agung said.

"The move will increase onshore dollar liquidity," Bahana Securities analyst Fakhrul Fulvian said in Jakarta. "But (Bank Indonesia) still needs to improve confidence so that people will want to sell their dollars."

BLOOMBERG, REUTERS

A version of this article appeared in the print edition of The Straits Times on September 26, 2015, with the headline 'Bank Indonesia to announce new policy to prop up rupiah'. Print Edition | Subscribe