Indonesia: Positive start of the year for FX reserves – UOB
Economist at UOB Group Enrico Tanuwidjaja reviewed January’s report of FX reserves in Indonesia.
“Indonesia’s foreign exchange reserves jumped by USD2.5bn to USD131.7bn in January, almost beating January 2018’s record of USD132bn. The latest reserve level was equivalent to 7.8 months of import financing or 7.5 months of imports, and payments of government external debt; which is well above the international adequacy standard of around 3 months of imports.”
“The increase in January’s reserves was attributable to the sale of global bonds by the government, amounting about USD3.0bn last month, to finance its budget deficit in 2020. In addition, the reserve accumulation was underpinned by the oil & gas foreign exchange receipts and other foreign exchange receipts. Bank Indonesia (BI) assessed that foreign exchange reserves will remain adequate, supported by the stability and solid domestic economy prospect. Moreover, the near-record reserves will provide Indonesia’s central bank more firepower to cope with the market volatility arising from the current outbreak of novel coronavirus (2019-nCoV) and its impact on the economy.”
“Going forward, we might see a further moderate build-up in FX reserves on the back of easing trade tensions between US-China and the soon-to be released Omnibus Law in taxation and job creation, in which may result in higher investor confidence and turning into more capital inflow. Indonesia’s stable and low inflation is also another key factor as it helps the central bank in maintaining the exchange rate stability. Risks surrounding this view would be capital outflows, retreating to save-haven assets (e.g. 2019-nCoV outbreak last longer than expected).”