Indonesia takes ‘bold’ steps to guard rupiah from virus

Indonesia’s central bank is taking “bold” steps to protect the nation’s currency and bonds against the economic impact of the novel coronavirus.

Bank Indonesia is intervening in the bond, currency, and non-deliverable forwards markets to defend the rupiah.

Nanang Hendarsah, the central bank’s executive director for monetary management, announced the measures in a text message Monday.

He said the bank purchased 1.7 trillion rupiah of bonds from the secondary market Monday after receiving offers worth 3.7 trillion rupiah. The central bank would negotiate with commercial banks to buy back even more government bonds.

The rupiah fell as much as 0.5% to 13,722 to a US dollar, the lowest level since Jan 13. The currency posted its first weekly loss in nine as foreign investors pulled out more than US$560 million from the nation’s sovereign bonds in the first three days of last week.

The virus continues to spread rapidly beyond China’s borders, prompting extraordinary travel restrictions by several countries, including Indonesia. 

In response to a global sell-off, policymakers around the world are stepping up action.

China reduced rates and injected cash into the financial system Monday as markets plunged upon resumption of trade after the Lunar New Year break.

Bank Indonesia Governor Perry Warjiyo last week warned of “unprecedented fears” as the virus continued to migrate beyond China and the epicenter of the epidemic in Wuhan.

Indonesia has ordered the suspension of direct flights to and from mainland China as of Feb 5. It has already halted visas on arrival for Chinese citizens.

“The current rupiah depreciation is more due to the temporary negative sentiment from the drop of Chinese stocks and the impact of yuan depreciation on regional financial markets,” Hendarsah said.

“Fundamentally, the stability of the rupiah will be supported by the narrowing current-account deficit, low inflation, and rising forex reserves.”

The sell-off in Indonesian stocks and bonds persisted on Monday, too, as investors grew tense over the impact of the coronavirus.

The Jakarta Composite Index of stocks, which capped the most substantial monthly loss in almost two years in January, tumbled as much as 1.1% on Monday to 5,877.201, the lowest level since May 17.

The yield on benchmark ten-year sovereign bonds rose five basis points to 6.727%.


Picture credit: Mohamad Trilaksano from Pixabay