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12 Jun 2013
Bank Indonesia unexpected, curbs USD/IDR – TD Securities
FXstreet.com (London) - In an unexpected move yesterday, research teams at TD Securities commented and noted that the Bank Indonesia increased the overnight deposit rate (also known as FASBI) by 25bp to 4.25% in order to stabilize the very weak and volatile rupiah. After the decision, BI released the following communiqué:
“The Governor of Bank Indonesia stated that Bank Indonesia is fully prepared to take necessary measures to stabilise monetary conditions in light of recent rupiah depreciation. To this end, it was decided today at the Board of Governors’ Meeting to raise the interest rate on the deposit facility by 25 basis points from 4% to 4.25%, effective from 12th June 2013. In addition, Bank Indonesia will continue to meet the market requirement for rupiah and forex liquidity. These pre-emptive measures are taken to maintain monetary stability.”
USD bidding
The team at TD Securities said that this call was based on the grounds of elevated inflation, the outlook of which has sharply worsened after the government decided to introduce early cuts of fuel subsidies. They went on to say that they also see the possibility that BI increases the amount of daily USD auctions as they “will continue to meet the market requirement for rupiah and forex liquidity.” In fact, they said, the onshore market continues to suffer from a substantial lack of dollar liquidity, highlighted by the wide spread between USD/IDR spot rate and the NDF market. Acting this way, explaining, BI would increase USD liquidity via forex selling auctions, while withdrawing excess IDR liquidity through a tighter FASBI rate. The joint effect of these measures should curb some upside pressure from USD/IDR in the short term in their opinion.
“The Governor of Bank Indonesia stated that Bank Indonesia is fully prepared to take necessary measures to stabilise monetary conditions in light of recent rupiah depreciation. To this end, it was decided today at the Board of Governors’ Meeting to raise the interest rate on the deposit facility by 25 basis points from 4% to 4.25%, effective from 12th June 2013. In addition, Bank Indonesia will continue to meet the market requirement for rupiah and forex liquidity. These pre-emptive measures are taken to maintain monetary stability.”
USD bidding
The team at TD Securities said that this call was based on the grounds of elevated inflation, the outlook of which has sharply worsened after the government decided to introduce early cuts of fuel subsidies. They went on to say that they also see the possibility that BI increases the amount of daily USD auctions as they “will continue to meet the market requirement for rupiah and forex liquidity.” In fact, they said, the onshore market continues to suffer from a substantial lack of dollar liquidity, highlighted by the wide spread between USD/IDR spot rate and the NDF market. Acting this way, explaining, BI would increase USD liquidity via forex selling auctions, while withdrawing excess IDR liquidity through a tighter FASBI rate. The joint effect of these measures should curb some upside pressure from USD/IDR in the short term in their opinion.