Indonesia’s Foreign Reserves Hold Near Lowest Level Since 2010

Indonesia’s foreign-exchange reserves held near a more than two-year low in August, limiting the central bank’s capacity to shore up the declining rupiah as it pursues bilateral swap agreements with regional counterparts.

The country’s reserves were $93 billion last month, little changed from $92.7 billion in July, Bank Indonesia spokesman Difi Johansyah said in a statement in Jakarta today. The July reserves were the smallest since October 2010, according to data compiled by Bloomberg.

Indonesia’s reserves remain sufficient to face global uncertainties and volatility in the balance of payments, the central bank said today. The slump in the rupiah, Asia’s worst-performing currency this quarter, has added to inflationary pressures and prompted policy makers to raise borrowing costs to stem a slide that was exacerbated by the sell-off in emerging-nation stocks and currencies.

“We believe policy makers have anticipated this situation and need to activate bilateral swap agreements with other central banks, not only with Japan, so that Indonesia has a second line of defense,” Anton Gunawan, chief economist at PT Bank Danamon Indonesia and a candidate for the No. 2 job at the monetary authority, said before the data.

The rupiah fell 0.5 percent to 11,175 per dollar as of 4:53 p.m. in Jakarta, according to prices from local banks. It has slid more than 11 percent this quarter.

Bank Indonesia continues to stabilize the rupiah in the market, Deputy Governor Perry Warjiyo said today. The central bank has said it is allowing the rupiah to find a “new equilibrium” even as it supports the currency to reduce its volatility. Foreign-exchange reserves have fallen from $112.8 billion in December 2012.

Further Volatility

Bank Indonesia anticipates further volatility in international markets, which is why it extended a swap agreement with the Bank of Japan, it said in today’s statement. The central bank last week extended a bilateral swap deal with Japan valued at $12 billion that will allow the two to borrow from each other’s foreign-exchange reserves.

It is in talks for similar cooperation with other central banks in the region, Bank Indonesia said today. The monetary authority unexpectedly raised its reference rate by half a percentage point in a meeting Aug. 29, two weeks ahead of the next scheduled policy review.

The August foreign reserves position is equivalent to five months of imports and government external debt payments, Bank Indonesia said in the statement.

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