The Indonesian Finance Minister stated on Monday that as the rupiah falls to its lowest level in 20 years, the Indonesian government and central bank will increase scrutiny of US dollar purchases.
Bank Indonesia allows its customers to purchase up to USD 25,000 per month without requiring specific underlying transactions. However, US dollar purchases exceeding this limit may only be used for approved, documented purposes, such as paying for imports or repaying overseas debt.
Data shows that Indonesia is a major economy in Southeast Asia, with approximately 41% of government debt denominated in foreign currency. If the rupiah depreciates further, debt repayment will become more expensive.
Monetary policy for the remainder of the year in Indonesia will be primarily driven by volatility and the value of the rupiah. Key factors for any further interest rate hikes will be the continued strengthening of the US dollar or a widening current account deficit resulting from strong domestic demand.
With declining foreign exchange reserves, the Indonesian government has also implemented import restriction measures this year as it seeks to control the current account deficit. Reduced imports have also weakened the demand for purchasing more foreign currency.
For now, the market believes that Indonesia is striving to maintain macroeconomic stability to withstand exchange rate fluctuations.
