INDONESIA’S CENTRAL BANK is taking “bold” steps to guard the nation’s currency and bonds as mounting concerns about the economic impact of the novel coronavirus epidemic trigger a sell-off by foreign investors.
Bank Indonesia is intervening in the bond, currency and non-deliverable forwards markets to protect the rupiah, Nanang Hendarsah, the central bank’s executive director for monetary management, said in a text message Monday.
He said the bank bought 1.7 trillion rupiah ($124 million) of bonds from the secondary market Monday after receiving offers worth 3.7 trillion rupiah, and would negotiate with commercial banks to buy back even more government bonds.
The rupiah fell as much as 0.5% to 13,722 to a US dollar, the lowest level since Jan. 13. The currency posted its first weekly loss in nine as foreign investors pulled out more than $560 million from the nation’s sovereign bonds in the first three days of last week.
As the virus continues to spread rapidly beyond China’s borders, prompting extraordinary travel restrictions by several countries including Indonesia, policy makers around the world are stepping up action in response to a global sell-off. China reduced rates and injected cash into the financial system Monday as markets plunged upon resumption of trade after the Lunar New Year break.
Bank Indonesia Governor Perry Warjiyo last week warned of “unprecedented fears” as the virus continued to migrate beyond China and the epicenter of the epidemic in Wuhan. Indonesia has ordered the suspension of direct flights to and from mainland China as of Feb. 5, and has already halted visas on arrival for Chinese citizens.
“The current rupiah depreciation is more due to the temporary negative sentiment from the drop of Chinese stocks and the impact of yuan depreciation on regional financial markets,” Hendarsah said. “Fundamentally, the stability of the rupiah will be supported by the narrowing current-account deficit, low inflation and rising forex reserves.”
The sell-off in Indonesian stocks and bonds continued on Monday too as investors grew edgy over the impact of the coronavirus. The Jakarta Composite Index of stocks, which capped the biggest monthly loss in almost two years in January, tumbled as much as 1.1% on Monday to 5,877.201, the lowest level since May 17. The yield on benchmark 10-year sovereign bonds rose 5 basis points to 6.727%. — Bloomberg