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Economist at UOB Group Enrico Tanuwidjaja reviewed the recent release of FX reserves figures in Indonesia.

Key Quotes

“Indonesia foreign exchange reserves dropped by USD1.3bn to USD130.4bn as end-February 2020. The latest reserve level was equivalent to 7.7 months of import financing or 7.4 months of imports, and payments of government external debt, which is well above the international adequacy standard of around 3 months of imports. Despite being lower than January’s 2020 position, Bank Indonesia (BI) considers that the official reserve assets position remains able to support the external sector resilience and maintain macroeconomic and financial system stability.”

“BI reiterated that the decline in February’s foreign exchange reserves was attributable to the government’s external debt payments, amongst others. In addition, we view that the drop was also influenced by the foreign outflows in government bonds and stocks during the month linked to the COVID-19 outbreak. On top of that, foreign exchange earnings from exports seemed to be slower due to the weaker demand and lower price of crude palm oil (CPO – Indonesia’s main commodity) from China; as CPO price fell by 10% throughout February.”

We might see a further decline in FX reserves (yet measured) on the back of the ongoing uncertainty from the COVID-19 outbreak, which may result in slower foreign exchange earnings and capital outflow. Nevertheless, Indonesia’s stable and low inflation will help the central bank in maintaining the exchange rate stability.”