Bank Indonesia’s Strategy to Maintain Rupiah Exchange Rate
The stability of the rupiah exchange rate is one of the key elements in maintaining the health of the Indonesian economy. Bank Indonesia (BI), as the monetary authority, has a great responsibility to ensure that the rupiah exchange rate remains stable, especially in the midst of uncertain global economic dynamics.
In maintaining such stability, BI has made various efforts to achieve this goal through strengthening monetary instruments and pro-market policy strategies.
First, strengthening the pro-market monetary operations strategy. This strategy aims to increase the effectiveness of monetary policy and maintain the attractiveness of yields in the rupiah money market. Some of the main initiatives in this strategy include strengthening the interest rate structure in the rupiah money market and optimising financial instruments.
By maintaining the attractiveness of yields, BI seeks to increase foreign portfolio inflows into domestic financial assets. This is important to support rupiah exchange rate stability. The inflow of foreign funds can help increase demand for the rupiah, thus supporting exchange rate stability.
BI is also optimising the use of various financial instruments such as Bank Indonesia Rupiah Securities (SRBI), Bank Indonesia Forex Securities (SVBI), and Bank Indonesia Forex Sukuk (SUVBI). These instruments are used to manage liquidity and support exchange rate stability more effectively.
Second, intervention in the forex and Government Securities markets. BI actively intervenes in the foreign exchange (forex) market and Government Securities (SBN) market to maintain rupiah exchange rate stability. These interventions are conducted through spot transactions, Domestic Non-Deliverable Forward (DNDF), and Government Securities (SBN) in the secondary market.
Third, the strengthening of term-repo SBN transactions and foreign exchange swaps. To maintain adequate banking liquidity, BI implemented a strategy of competitive SBN term-repo and forex swap transactions.
SBN term-repo transactions allow banks to obtain short-term liquidity by pledging SBNs. This assists banks in managing their liquidity more effectively and reduces pressure on the rupiah exchange rate.
While forex swaps provide a mechanism for banks to manage their forex needs, thus maintaining liquidity stability and supporting the rupiah exchange rate.
Bank Indonesia’s efforts in maintaining rupiah stability through the strengthening of monetary instruments and pro-market policy strategies have shown a strong commitment in facing global economic challenges.
By strengthening the interest rate structure, optimising financial instruments, intervening in the foreign exchange and SBN markets, and increasing the adequacy of banking liquidity, BI seeks to ensure that the rupiah exchange rate remains stable.
These measures not only support exchange rate stability, but also increase investors and market participants confidence in the Indonesian economy.
Source: Bappenas
