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Indonesia's foreign exchange reserves stood at USD 134.9 Bn at the end of Sept-23, a significant decrease of USD 2.2 Bn compared to the previous month. This month's hefty drop is consistent with the need for FX intervention, as the USD rallied and foreign capital flowed out of Indonesian markets (USD 1.1 Bn in bonds and USD 0.26 Bn in equities).
All these are of course driven by a severely bearish turn in the global market, as investors increasingly lose faith in the “Fed pivot + soft landing” scenario, due in part to a resilient US economy and its job market in particular. And as the oil price become increasingly volatile – with the latest Israel-Hamas War providing the latest twist – it only adds fuel to the narrative of prolonged tight money policy from the Fed, resulting in a steeper UST yields and even stronger USD.
We mentioned two weeks ago, in a report on Fed and BI policy, that pivot and soft landing is now nigh incompatible. A pivot will likely require a hard landing, otherwise the Fed will probably commit to a prolonged tight-money policy. In other words, things will have to get worse before it could get better.
The question, then, is whether BI has sufficient resources left in its war chest to ride out the storm. On the surface, things does not appear promising – the Indonesian 10Y sovereign yields have been flirting with 7.00% in recent days, while the Rupiah performed worse than some of its peers such as the PHP and MYR in recent weeks despite BI’s apparent intervention.
The much-touted export receipts regulations have also been insufficient to offset the outflows.
Since the requirement on commodity exporters to post 30% of their export receipts at home was effective on August 1st, we had seen around USD 2.3 Bn increase in banks’ excess FX
Executive Summary
Foreign exchange reserves decreased significantly to $134.9 billion in September 2023, as BI had to intervene amidst a bearish global market, strong US dollar, and capital outflows.
Export receipt regulations and SRBI has been quite successful, but not enough to offset the capital outflows in recent weeks.
The global market volatility might worsen before it gets better, and FX reserves remain key for Indonesia to weather the storm – although BI will probably aim to dampen the pace of depreciation rather than targeting a certain level of USD/IDR.
In the short-term, the risk from IDR depreciation lies mainly in the upcoming maturity of FX debt, but there may also be benefits especially in restoring trade balance against China and other Asian countries and also supporting loan and deposit growth.
FX Reserves:
Getting worse before it gets better
09 Oct 2023
Barra Kukuh Mamia Senior Economist
M Rifat Juniardo S Economist/Analyst
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liquidity – of which USD 1.3 Bn was placed directly in BI’s special term deposit facility (TD- DHE). This was less than the USD 3.2 Bn in portfolio outflows during the same period.
BI can, of course, issue SRBI as a way to absorb IDR liquidity – and it works, given the amount of incoming bids in every SRBI auction so far. Still, any positive impact it has on exchange rate movements have been rather indirect, and is essentially a trade off against tighter liquidity and potentially weaker loan growth.
For the time being, then, with “king Dollar” still reigning supreme, BI will probably continue to “step into the ring” from time to time in order to rein in the more extreme gyrations. We do not think that BI would (or should) target a particular level of IDR/USD, but rather its first difference – in other words, it matter less what level the Rupiah eventually lands on each day, but it matters how fast it gets there.
Besides, it can be argued that at this point, the risk-reward calculus on IDR depreciation may be skewed towards the latter. Remember that the IDR remains one of the better-performing currencies in Asia – certainly compared to the CNY – and a weaker Rupiah may restore some of the trade imbalances that has happened in recent months. It can also translate to a larger money stock, which – during a time of low and declining core inflation – can arrest some of the deflationary trend with regards to transaction, bank loans, and deposits.
On the other hand, the main danger that could arise from IDR depreciation lies in FX debt repayment. According to Bloomberg, about USD 9.1 Bn worth of FX sovereign bonds is coming due until the end of Q2-24, with USD 2.0 Bn more for SOE bonds and USD 1.1 Bn for private sector bonds. Given this outsized contribution of public sector debt, BI’s reserves will still play a key role in managing the risk of depreciation – until things will, hopefully, get better.
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134.9
15,588 12,000
13,000
14,000
15,000
16,000
17,000 60
80 100 120 140 160
Jan-20 Jun-20 Oct-20 Mar-21 Jul-21 Dec-21 Apr-22 Aug-22 Jan-23 May-23 Oct-23
BI FX Reserves USD/IDR
USD Bn
-5 0 5 10 15 20
Jan-20 Jun-20 Dec-20 May-21 Nov-21 May-22 Oct-22 Apr-23 Oct-23
Banks’ placement at BI:
FX term deposit FX Swap
FX certificate (SBBI)
FX term deposit (DHE) USD Bn5.38 10.30
0.18 1.59
Panel 1. FX reserves are deteriorating, and the pressure on IDR and emerging currencies have
remained significant
Chart 1. The value of export receipts (DHE)-linked instrument has increased since DHE rule- change in Aug 1
st, contribute positively to the share of overall FX liquidity
Source: BI
Source: Bloomberg
88.890.6
75.3
70 80 90 100 110 120 130
IDR
Hard currencies (inverse of DXY) Emerging currencies
Index (Jan-2020 = 100)
4
`
-1.5 3.3
-40 -20 0 20 40
60 ▬FX Liquidity index (NFA – FX loan growth)
▬IDR/USD (YoY)
%
-0.2 4.7
-40 -20 0 20 40 60
Jan-03 Nov-03 Aug-04 May-05 Feb-06 Nov-06 Aug-07 May-08 Mar-09 Dec-09 Sep-10 Jun-11 Mar-12 Dec-12 Sep-13 Jul-14 Apr-15 Jan-16 Oct-16 Jul-17 Apr-18 Jan-19 Oct-19 Aug-20 May-21 Feb-22 Nov-22 Aug-23
▬Net foreign assets (NFA)
▬Domestic FX loans
% YoY
-18 -12 -6 0 6
-18 -12 -6 0 6
Mar-20 Oct-20 May-21 Dec-21 Jul-22 Mar-23 Oct-23
Net Bonds Inflows Net Equities Inflows Cumulative foreign flows from 3
Feb 2020 (USD Bn)
IDR/USD (changes since 3 Feb 2020)
-USD 11.1 Bn (5 Oct 2023)
+USD 3.79 Bn (5 Oct 2023)
Panel 2. Domestic FX liquidity has slowed down slightly in recent months
Source: BI, Bloomberg
Chart 2.
IDR depreciation further exacerbated by the outflow of foreign capital from both the bond and stock market in AugustSource: Bloomberg
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46.9%
-30 -20 -10 0 10 20 30 40
35%
45%
55%
65%
75%
85%
― Reserve adequacy ratio vs. potential outflows (inc. ST ext. debt)
― IDR/USD (12M after)
134.9
0 50 100 150 200 250 300
350 ― BI FX reserves
Foreign ownership in gov’t bonds Foreign ownership in equities
Short-term gov’t external debt* Short-term private external debt*
USD Bn
* jatuh tempo dalam setahun ke depan
13.4
54.4 183.3
50.2
-1.0 1.7 3.7
-4 -2 0 2 4 6 8 10 12
-30 -20 -10 0 10 20 30 40
IDR/USD (lhs)
Real interest rate differential, policy rate Real interest rate differential, 10Y bonds
Panel 3. FX reserve coverage has fallen slightly, partly also due to recent outflows
Source: BI, Bloomberg
Chart 3. IDR/USD has been much less dependent on ID-US real rate differentials
Source: Bloomberg
% YoY YoY
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Selected Macroeconomic IndicatorSource: 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-Oct -1 mth Chg (%)
US 5.50 Oct-23 1.80 Baltic Dry Index 1,929.0 1,063.0 81.5
UK 5.25 Oct-23 -1.45 S&P GSCI Index 575.7 604.2 -4.7
EU 4.50 Oct-23 0.20 Oil (Brent, $/brl) 84.6 90.0 -6.1
Japan -0.10 Jan-16 -3.30 Coal ($/MT) 141.6 169.5 -16.5
China (lending) 2.50 Sep-23 4.25 Gas ($/MMBtu) 3.13 2.60 20.4
Korea 3.50 Aug-23 -0.20 Gold ($/oz.) 1,833.0 1,926.1 -4.8
India 6.50 Oct-23 -0.33 Copper ($/MT) 7,971.3 8,482.5 -6.0
Indonesia 5.75 Sep-23 3.47 Nickel ($/MT) 18,310.3 20,840.5 -12.1
CPO ($/MT) 766.1 824.1 -7.0
Rubber ($/kg) 1.38 1.40 -1.4
SPN (1M) 5.70 5.67 3.0
SUN (10Y) 6.99 6.42 57.3
INDONIA (O/N, Rp) 5.58 5.59 -1.5 Export ($ bn) 22.00 20.86 5.47
JIBOR 1M (Rp) 6.40 6.40 0.0 Import ($ bn) 18.88 19.57 -3.53
Trade bal. ($ bn) 3.12 1.29 141.85
Lending (WC) 8.93 8.93 0.00
Deposit 1M 4.19 4.19 0.10
Savings 0.67 0.67 -0.20
Currency/USD 6-Oct -1 mth Chg (%) Consumer confidence
index (CCI) 125.2 123.5 127.1
UK Pound 0.817 0.796 -2.60
Euro 0.945 0.933 -1.27
Japanese Yen 149.3 147.7 -1.07
Chinese RMB 7.298 7.303 0.07
Indonesia Rupiah 15,610 15,265 -2.21 Capital Mkt 6-Oct -1 mth Chg (%)
JCI 6,888.5 6,991.7 -1.48 USA 49.0 47.6 140
DJIA 33,407.6 34,642.0 -3.56 Eurozone 43.4 43.5 -10
FTSE 7,494.6 7,437.9 0.76 Japan 48.5 49.6 -110
Nikkei 225 30,994.7 33,036.8 -6.18 China 50.6 51.0 -40
Hang Seng 17,486.0 18,456.9 -5.26 Korea 49.9 48.9 100
Indonesia 52.3 53.9 -160
Stock 2,833.3 2,869.7 -36.44
Govt. Bond 823.0 846.3 -23.30
Corp. Bond 10.8 11.1 -0.26
Chg (bps) Aug
Sep Money Mkt Rates 6-Oct -1 mth Chg
(bps)
Bank Rates (Rp) Jun May Chg
(bps)
1.8 45.6 66.6
Aug Jul
Foreign portfolio
ownership (Rp Tn) Sep Aug Chg (Rp Tn)
External Sector
Prompt Indicators
Car sales (%YoY)
Manufacturing PMI Motorcycle sales (%YoY)
Central bank reserves ($ bn)*
-8.3 -6.7 4.7
Chg (%)
Jul Jun
Aug
137.1 137.7 -0.42
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7
Indonesia – Economic Indicators Projection*Estimated number
** Estimation of Rupiah’s fundamental exchange rate
Economic, Banking & Industry Research Team David E.Sumual
Chief Economist
[email protected] +6221 2358 8000 Ext:1051352
Agus Salim Hardjodinoto Head of Industry and Regional Research
+6221 2358 8000 Ext: 1005314
Barra Kukuh Mamia Senior Economist [email protected] +6221 2358 8000 Ext: 1053819 Victor George Petrus Matindas
Senior Economist
[email protected] +6221 2358 8000 Ext: 1058408
Gabriella Yolivia Industry Analyst
[email protected] +6221 2358 8000 Ext: 1063933
Lazuardin Thariq Hamzah Economist / Analyst
[email protected] +6221 2358 8000 Ext: 1071724 Keely Julia Hasim
Economist / Analyst [email protected] +6221 2358 8000 Ext: 1071535
Elbert Timothy Lasiman Economist / Analyst [email protected] +6221 2358 8000 Ext: 1074310
Thierris Nora Kusuma Economist / Analyst [email protected] +6221 2358 8000 Ext: 1071930 M Rifat Juniardo S
Economist / Analyst [email protected]
+6221 2358 8000 Ext: -
Firman Yosep Tember Research Assistant [email protected] +6221 2358 8000 Ext: 20378
Aldi Rizaldi Research Assistant [email protected] +6221 2358 8000 Ext: -
2018 2019 2020 2021 2022 2023E
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)
5.2 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
5.3 4784
5.5 5.50 15,568
54.5 1.0
5.1 5285
2.6 5.75 15,535
32.8 -0.7
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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