BI Cuts Back on Money Market Intervention

BI Cuts Back on Money Market Intervention
The minimum effect Bank Indonesia's policies have in reducing the rupiah volatility made ​​the central bank decide to hold back on its interventions in the money market, analysts said.

"It's useless to continue to fight the market; so the quantity of (BI's) intervention is lowered," Tony Prasetyantono, head of Economics and Public Policy Studies at Gadjah Mada University, said yesterday. The cutback, he said, is evident from sharp decline in foreign exchange reserves. As a result, analysts said the central bank should start being more selective in its intervening.

Based on forex reserves data, from January to November 2012 BI had disbursed Rp3,274 trillion for open-market operations. In the same period this year, the number dropped 24.38 percent to Rp2,476 trillion. Meanwhile, forex reserves had sunk to below US$ 100 billion since last June, along with the foreign capital outflows and the widening current account deficit.

Tony assessed that BI's decision not to enter the market due to a weakening rupiah is actually a good way to reduce the trade balance deficit. In the last ten months, the trade balance deficit has reached $6.36 billion.

"If the rupiah strengthens, it would hamper exports," he said.

Nevertheless, Tony hopes that the central bank will not let the exchange rate weakened too deep. "Do not let it exceed the 12,000 mark," said Tony.

At the Jakarta Interbank Dollar Spot Rate (JISDOR) on Thursday last week, the rupiah briefly penetrated Rp12,018 per US dollar. However, on Friday's trade the local currecy bounced back to Rp11,960 per US dollar.

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