1
• Bank Indonesia’s foreign exchange reserves stood at USD 139.1 Bn by the end of March 2022, a decrease of USD 2.4 Bn from last month’s figure – an amount equivalent to 7.2 months worth of imports or 7.0 months worth of imports and short- term external debt. Sizable outflows in the bond market during the month seemed to have driven part of this decline, as had external debt repayment.
• It is also worth noting that despite the dramatic increase in commodity prices, which should bolster Indonesia’s FX liquidity, private FX liquidity in banks remained quite low (Chart 1). This might be driven by increased demand for foreign currencies, due to the recovery of domestic demand as well as an upswing in oil prices – both of which are likely to drive up imports. Imports may continue to move upwards in the short-term, following high seasonal demand and the recent lockdown in parts of China that could send import prices further north.
• Nonetheless, the current commodity boom should eventually tilt towards Indonesia’s favour in the coming months. The recent proposal by the EU to impose further sanctions on Russia, which would now comprise a wider array of goods including coal, could send commodity prices even higher, a boon for Indonesia’s terms of trade.
Moreover, the US government’s (and several IEA member countries) decision to release stocks from their strategic petroleum reserves (SPR) could help bring down oil prices, at least in the short-term.
Executive Summary
Indonesia’s foreign exchange reserve decreased by USD 2.4 Bn, closing the month at the 8-months low level around USD 139.1 Bn. This decline was largely fuelled by external debt payment, while higher imports also played its part in suppressing the FX reserve.
Inflows into the equity market continue as higher corporate earnings attract investors.
However, outflows from the debt market still offset these inflows, which could be even worse as the Fed announced its strategy for QT.
The current FX reserve position is sufficient to act as a buffer in case of outflows. But, prospects of a more violent capital flight along with heightened inflationary risks would ostensibly force Bank Indonesia to adjust the BI 7D-RR.
FX Reserves:
An early trial for Indonesia’s war chest
07 April 2022
Lazuardin Thariq H Economist/Analyst
Barra Kukuh Mamia Senior Economist
2
• What remains uncertain then, is the extent to which the post-pandemic commodity windfall could alleviate the tough trade-off that Indonesia will face in the medium term? The Indonesian government needs to simultaneously maintain a buffer to
help stabilize the Rupiah, while also securing enough funds to maintain domestic price stability (through the government’s price control mechanisms) and economic growth (through consumption and investment). A large enough windfall would certainly spare the economy from such a trilemma, but a string of subpar trade surpluses (compared to what we might expect according to the terms of trade index) indicates that this windfall might not be large enough to attain all three objectives.
• Capital flows then, still hold an important role in providing domestic funding needs.
Fortunately, prospects of higher earnings due to the ongoing commodity bonanza have translated to considerable inflows into the capital market, softening the blow from muted foreign appetite for Indonesian bonds. However, uncertainty persists given the prospect of more aggressive monetary policy tightening by the Fed, which has just laid out its plan for a much-accelerated balance sheet run-off. Markets are now expecting 8 rate hikes throughout the rest of 2022, while impacts from the upcoming QT may roughly equal to a 0.25 – 0.75% rate increase. Such a tightening scenario, with interest rates surging above 2.5%, has rarely happened since the 2008 global financial crisis.
• Indeed, the 2008 global financial crisis is one of the darkest chapters in the history of Indonesia’s equity and bond market as USD 58.9 Bn worth of foreign capital (11%
of GDP) found its way out of the Indonesian market in search of safety. Some episodes of en-masse capital outflows also happened after 2008, albeit on a much lower scale compared to the 2008 global crisis (Chart 2). It should be noted, however, that solely relying on FX reserves to absorb shocks from capital outflow might not be sufficient if capital flight risk is shown to be closer to the magnitude of the 2008 global financial crisis.
• Finally, it’s equally important to consider that the proliferation of domestic inflationary risks would narrow Indonesia’s real rate differentials relative to the US, which may exacerbate the risk of capital flight. Hence, adjustments to the BI 7D-RR may still be necessary for 2022, although in a more gradual fashion as Indonesia’s inflation is still relatively benign, while the unyielding trade surplus also provides Bank Indonesia with some maneuvering space to maintain the stability of the Rupiah.
“Uncertainty persists given the prospect of more aggressive monetary policy tightening by the Fed, which just laid out their plan for a much-accelerated balance sheet run-off that would roughly equal to a
0.25 – 0.50% in policy rate increase”.
3
Chart 1. The increase in FX reserve has been limited as demand for foreign currency remain high and private FX liquidity has not increased significantly
Source: Bank Indonesia, BCA Economists
Chart 2. FX Reserves and commodity windfall should act as insurance against all but the most severe episodes of capital outflows
Source: Bank Indonesia, MoF
11.97
0 10 20 30
Jan-20 Jun-20 Nov-20 Apr-21 Sep-21 Feb-22
▬FX term deposit ▬Fx Swap ▬FX certificate (SBBI) Bank placement at BI:
USD Bn
0 40 80 120 160 200
-100 -50 0 50 100
Jan-07 Jan-10 Jan-13 Jan-16 Jan-19 Jan-22
Changes in foreign capital ownership (lhs) FX Reserves (rhs)
Bn USD Bn USD
Subprime crisis
Taper tantrum
Yuan crisis
Trade war
COVID pandemic
4 Selected Macroeconomic Indicator
Source: Bloomberg, BI, BPS Notes:
^Data for January 2022
*Data from earlier period
**For changes in currency: Black indicates appreciation against USD, Red otherwise
***For PMI, >50 indicates economic expansion, <50 otherwise Key Policy Rates Rate (%) Last
Change
Real Rate (%)
Trade &
Commodities 6-Apr -1 mth Chg (%)
US 0.50 Mar-22 -7.40 Baltic Dry Index 2,128.0 2,148.0 -0.9
UK 0.75 Mar-22 -5.45 S&P GSCI Index 713.6 783.3 -8.9
EU 0.00 Mar-16 -7.50 Oil (Brent, $/brl) 101.1 118.1 -14.4
Japan -0.10 Jan-16 -1.00 Coal ($/MT) 289.4 395.1 -26.8
China (lending) 4.35 Oct-15 3.45 Gas ($/MMBtu) 6.20 4.74 30.8
Korea 1.25 Jan-22 -2.85 Gold ($/oz.) 1,925.4 1,970.7 -2.3
India 4.00 May-20 -2.07 Copper ($/MT) 10,286.8 10,702.0 -3.9
Indonesia 3.50 Feb-21 0.86 Nickel ($/MT) 33,469.0 29,609.0 13.0
CPO ($/MT) 1,557.6 1,638.7 -4.9
Rubber ($/kg) 1.75 1.74 0.6
SPN (1M) 1.45 2.32 -87.0
SUN (10Y) 6.78 6.66 11.5
INDONIA (O/N, Rp) 2.79 2.79 -0.5 Export ($ bn) 20.46 19.17 6.7
JIBOR 1M (Rp) 3.55 3.55 0.0 Import ($ bn) 16.64 18.21 -8.6
Trade bal. ($ bn) 3.83 0.96
Lending (WC) 8.63 8.76 -13.02
Deposit 1M 2.92 3.02 -9.83
Savings 0.69 0.71 -2.65
Currency/USD 6-Apr -1 mth Chg (%) Consumer confidence
index (CCI) 113.1 119.6 118.3
UK Pound 0.765 0.756 -1.22
Euro 0.918 0.915 -0.29
Japanese Yen 123.8 114.8 -7.25
Chinese RMB 6.360 6.320 -0.63
Indonesia Rupiah 14,359 14,387 0.19 Capital Mkt 6-Apr -1 mth Chg (%)
JCI 7,104.2 6,928.3 2.54
DJIA 34,496.5 33,614.8 2.62
FTSE 7,587.7 6,987.1 8.60 USA 57.1 58.6 -150
Nikkei 225 27,350.3 25,985.5 5.25 Eurozone 56.5 58.2 -170
Hang Seng 22,080.5 21,905.3 0.80 Japan 54.1 52.7 140
China 48.1 50.4 -230
Korea 51.2 53.8 -260
Stock 2,463.5 2,405.8 57.69 Indonesia 51.3 51.2 10
Govt. Bond 848.3 896.6 -48.35
Corp. Bond 19.4 20.3 -0.87
-2.6 12.5 67.4
Feb Jan Chg
(%)
Jan Dec
Feb
139.1 141.4 -1.65
65.1 58.9 68.1
Foreign portfolio
ownership (Rp Tn) Mar Feb Chg (Rp Tn)
External Sector
Prompt Indicators
Car sales (%YoY)
Manufacturing PMI Cement sales (%YoY) Motorcycle sales (%YoY)
Central bank reserves ($ bn)*
Money Mkt Rates 6-Apr -1 mth Chg (bps)
Bank Rates (Rp) Dec Nov Chg
(bps)
13.6 7.8 -0.9
Chg (bps) Feb
Mar
5 Indonesia – Economic Indicators Projection
** Estimation of Rupiah’s fundamental exchange rate
2017 2018 2019 2020 2021 2022E
Gross Domestic Product (% YoY) GDP per Capita (US$)
Consumer Price Index Inflation (% YoY) BI 7 day Repo Rate (%)
USD/IDR Exchange Rate (end of year)**
Trade Balance (US$ billion) Current Account Balance (% GDP)
5.1 3877
3.6 4.25 13,433
11.8 -1.6
5.2 3927
3.1 6.00 14,390
-8.5 -3.0
5.0 4175
2.7 5.00 13,866
-3.2 -2.7
-2.1 3912
1.7 3.75 14,050
21.7 -0.4
3.7 4350
1.9 3.50 14,262
35.3 0.3
5.2 4640
3.7 4.0 14,660
35.7 0.5
PT Bank Central Asia Tbk
Economic, Banking & Industry Research of BCA Group 20th Grand Indonesia, Menara BCA
Jl. M.H Thamrin No. 1, Jakarta 10310, Indonesia Ph : (62-21) 2358-8000 Fax : (62-21) 2358-8343
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Economic, Banking & Industry Research Team
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Agus Salim Hardjodinoto Barra Kukuh Mamia Victor George Petrus Matindas
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