Indonesia’s Falling Forex Reserves Show Rupiah Being Propped Up

Indonesia’s foreign-exchange reserves fell to a one-year low in June, suggesting the central bank has been using them to stem declines in the rupiah.

Reserves dropped $2.74 billion in June to $108 billion, according to Bank Indonesia data released on Tuesday. They have fallen by $7.5 billion in a four-month run of declines that’s the longest since 2011.

“It tells you there are still some pressures on the rupiah that Bank Indonesia has tried to limit,” said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore. “One no longer hears Bank Indonesia saying that a weak rupiah could help manage the current-account deficit, so I think the view from within is to manage the downward pressures more.”

The rupiah has dropped 7.1 percent against the greenback this year in Asia’s worst performance after Malaysia’s ringgit as the economy slowed, inflation accelerated and the U.S. moved closer to raising interest rates. The currency was relatively stable in June, dropping 0.8 percent.

The rupiah closed 0.2 percent stronger at 13,327 a dollar on Tuesday before the reserves data was released.

“Without such intervention the rupiah would be much weaker,” said Eric Alexander Sugandi, a senior economist at Standard Chartered Plc in Jakarta. But it’s “measured” rather than aggressive intervention and the market will only be concerned if reserves drop below $100 billion, he said.

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