Dion Bisara & Muhamad Al Azhari
Bank Indonesia intervened in the currency market on Wednesday to prevent the rupiah from depreciating further against the dollar. The central bank also said the rupiah’s decline against the greenback was temporary.
“Hour by hour, we’ve been entering the market because Bank Indonesia will guard the market if there are sharp market fluctuations,” said Hartadi Sarwono, Bank Indonesia’s deputy governor in charge of monetary policies. “So, all of that can… reduce market concerns.”
Hartadi made the comments amid concerns that Europe’s debt crisis may undermine confidence in emerging economies.
The rupiah, which has risen 7.8 percent this year, fell 0.5 percent to trade at 8,710 against the dollar on Wednesday. The rupiah depreciated to as low as 8,883 in the morning session.
The yield on Indonesia’s 10-year government bonds jumped to 7.01 percent on Wednesday from 6.65 percent the day before.
Indonesian financial markets fell on Wednesday amid fears that Greece might default on its debt, which could discourage investors from riskier investments in developing economies, including Indonesia’s. That prompted overseas funds to unload their assets in emerging markets. The Jakarta Composite Index, the benchmark stock index, dropped 2 percent in its fourth day of declines, and foreign investors sold Rp 1.4 trillion worth of shares.
Hartadi said pressure on the rupiah in the past five days remained subdued. Other Asian currencies also depreciated. India’s rupee slid to a near two-year low, while the South Korean won fell the most in 15 months.
“Actually, the rupiah depreciated relatively less compared to what happened in neighboring countries in the past few days, except today,” Hartadi said.
Perry Wardjiyo, a director for monetary research at Bank Indonesia said the decline in the country’s financial markets could be attributed to concerns about Moody’s ratings downgrade of two French banks.
“The pressure will be short-lived,” Perry said. “We will continue to monitor and guard the stability of the rupiah,’’ Perry said.”
Separately, Rahmat Waluyanto, director general of the Finance Ministry’s debt management office, said the rupiah depreciated due to fears in the euro zone, which caused investors to think the European debt crisis will worsen.
“So, they prefer to hold on to the US dollar,’’ Rahmat said.
Still, Rahmat insisted that there was no capital outflow.
“This is far from capital outflow,” Rahmat said. “Hopefully, this will be temporary. All long-term investors have continued to hold our bonds.”
Today the Asian Development Bank cut its 2011 growth forecast for Asia, excluding Japan, to 7.5 percent from 7.8 percent on signs that a global economic recovery is faltering.