BI Governor Darmin Nasution said Friday the estimated amount would be well above the sufficient level of $90 billion. Darmin predicted the forex reserves to surpass $100 billion at the end of the first half before topping $120 billion in December.
“We actually have calculated the estimate — because there’s no exact formula to count it — of $90 [billion]. That’s actually enough,” he told reporters after a news conference at the Finance Ministry.
The reserves currently stand at $98 billion, Darmin said, up 2 percent from 2010’s year-end of $96.2 billion. Last year’s foreign currency reserves increased by 45 percent compared to a year earlier, while the projected $110 billion to $120 billion reserves by year-end reflected a 14 to 25 percent increase.
Higher foreign reserves will allow BI to stabilize the rupiah in stemming imported inflation. The central bank has expressed concerns over surging inflationary pressures this year as soaring food prices have brought January headline inflation to reach a 21-month high of 7.02 percent.
Finance Minister Agus Martowardojo also said high forex reserves could be used to calm volatility of bond markets at times when foreign investors sell-off Indonesian assets, which may destabilize the country’s economy.
Darmin said the rupiah would continue its upward trend this year, mainly if global imbalances persisted, and BI would continue to follow the “market’s dynamics”.
“We definitely will follow the market’s dynamics. We will follow the fundamentals so that the fundamentals do not sacrifice our economy,” he said.
“We are definitely keeping eyes on the payment balance to avoid exports disincentive due to the [strengthening] rupiah.”
Darmin considered the current rate of about Rp 8,800 to Rp 8,900 was “in line” with the country’s economic fundamentals, saying the currency “has not yet been” overvalued.
“[The movement of the rupiah] is highly affected by growth imbalances among developed nations and emerging markets like us. If the imbalances persist, the currency rate would tend to strengthen. That should be backed by trustworthy monetary and fiscal policies in the market,” he explained.
The rupiah has gained about 1.3 percent so far this year over capital inflows and the central bank has said it will let the rupiah appreciate to provide cheaper imported products and ease inflation from the
imports side.
Heavy foreign capital flows resulted in higher portfolio growth and direct investment last year as Indonesia showed resilience amid global economic recovery, local and international analysts have said.
BI has foreseen a flight-to-quality occurrence this year, in which global liquidity seeks for “safer” investment destinations such as the US and Europe instead of emerging markets including Indonesia,
BI Deputy Governor Hartadi Sarwono said.
Foreign investors pumped a net $13 billion in funds into the country’s stock and debt markets last year, posing risks of a volatile rupiah. The rupiah, however, appreciated by 4.4 percent last year or lower than neighboring countries as the central bank was “always in the market” to intervene with the rupiah’s volatility, Hartadi said. The intervention brought up the central bank’s monetary costs which in turn result in ballooning foreign currency reserves.
