Indonesia shores up rupiah as financial fears mount | USAEMALL.com

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Indonesia’s central bank has intervened “boldly” in the foreign exchange market as the rupiah hovers around five-year lows amid concerns over a sluggish economy and President Prabowo Subianto’s expensive policies.

The attempt to boost investor confidence in south-east Asia’s largest economy comes a day after Jakarta’s main stock index fell as much as 7.1 per cent to its lowest point since 2021.

Equities recouped some of the losses on Wednesday, gaining about 1 per cent. However, the currency declined as much as 0.7 per cent against the dollar.

Edi Susianto, executive director of the central bank’s monetary department, said the bank was intervening in the foreign exchange market to stabilise the rupiah, which he said had been hit by the stock market rout.

“We are boldly in the market to ensure the balance of FX supply and demand . . . in order to maintain market confidence,” he told the Financial Times.

Investors are worried about growth prospects after a string of recent data showed weakening purchasing power and consumer confidence, which economists attributed to a shrinking middle class, manufacturing sector and number of formal employment jobs amid a global economic slowdown.

The central bank is due to announce its interest rate decision later on Wednesday. Economists polled by Reuters and Bloomberg largely expect the bank to hold, though some say it could cut rates to address growth concerns.

“Bank Indonesia is caught between a rock and a hard place,” said OCBC senior Asean economist Lavanya Venkateswaran. “We lean towards a rate cut, as signs of weakening growth momentum have become increasingly evident in recent weeks. We believe it would be prudent for BI to prioritise growth at this juncture.”

In a separate effort to shore up market confidence, Indonesia’s securities regulator allowed companies to buy back shares without shareholder approval for a period of six months.

Markets have been rattled by President Prabowo’s spending plans. The former military general has launched a nationwide free meals programme for schoolchildren and pregnant women, a policy that is expected to cost $28bn a year and put pressure on the state budget.

Efforts to boost government revenue, on the other hand, have failed. State revenue for the first two months of the year fell by a fifth from the previous year, according to recent data.

Speculation over the resignation of finance minister Sri Mulyani Indrawati — which she denied on Tuesday — has weighed on sentiment. Also unnerving investors is the risk of political interference and lack of transparency at a newly launched sovereign wealth fund, Danantara, which has control over some of Indonesia’s largest state-owned companies.