Indonesia pledges 'bold' steps to shield rupiah from coronavirus shock

Bank Indonesia is intervening in the bonds, currency and non-deliverable forwards markets to protect the rupiah. PHOTO: REUTERS

JAKARTA (BLOOMBERG) - Indonesia's central bank is taking "bold" steps to guard the nation's currency and bonds as mounting concerns about the economic impact of the the novel coronavirus epidemic trigger a selloff by foreign investors.

Bank Indonesia is intervening in the bond, currency and non-deliverable forwards markets to protect the rupiah, Nanang Hendarsah, the central bank's executive director for monetary management, said in a text message on Monday (Feb 3). He said the bank bought 1.7 trillion rupiah (S$169 million) of bonds from the secondary market on Monday after receiving offers worth 3.7 trillion rupiah, and would negotiate with commercial banks to buy back even more government bonds.

The rupiah fell 0.6 per cent to close at 13,742 per US dollar, the lowest level since Jan. 10. The currency posted its first weekly loss in nine as foreign investors pulled out almost US$1.1 billion (S$1.5 billion) from the nation's sovereign bonds last week.

As the virus continues to spread rapidly beyond China's borders, prompting extraordinary travel restrictions by several countries including Indonesia, policy makers around the world are stepping up action in response to a global sell-off. China reduced rates and injected cash into the financial system on Monday as markets plunged on resumption of trade after the Lunar New Year break.

Bank Indonesia Governor Perry Warjiyo last week warned of "unprecedented fears" as the virus continued to migrate beyond China and the epicentre of the epidemic in Wuhan. Indonesia has ordered the suspension of direct flights to and from mainland China as of Feb 5, and has already halted visa on arrivals for Chinese citizens.

The selloff in Indonesian stocks and bonds continued on Monday too as investors grew edgy over the impact of the coronavirus. The Jakarta Compsite Index of stocks, which capped the biggest monthly loss in almost two years in January, tumbled as much as 1.1 per cent on Monday to 5,877.201, the lowest level since May 17. The yield on benchmark 10-year sovereign bonds rose 5 basis points to 6.729 per cent.

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