JAKARTA: Indonesia's forex reserves dropped by $1.3 billion in May to $144.9 billion, their lowest in nearly two years, following its interventions in the currency market, Bank Indonesia (BI) said on Monday, raising market concerns as pressures on the rupiah mount.
The currency fell on Monday to a new historic low of 18,170 a dollar, and has been under pressure as a result of a wide range of investor worries, including President Prabowo Subianto's big spending plans, a ballooning fuel subsidy budget following the Iran war, doubts about the central bank's autonomy and new commodity export policies.
In the year to May, Indonesia's reserves have fallen by $11.6 billion as the central bank stepped up currency intervention to defend the rupiah, which has fallen to fresh record lows almost every day since late March despite the government's $3.5 billion sale of U.S. dollar- and euro-denominated bonds last month.
BI said the reserve level at the end of May was equivalent to 5.6 months' worth of imports, above the international standard of three months and "adequate to support external resilience and maintain macroeconomic and financial system stability".
However, some market players said the net FX reserves are worryingly low given that a big chunk of the $144.9 billion was in the form of commercial bank deposits with the central bank.
A large part of BI's reserves consists of U.S. dollars placed by banks in its monetary operation instruments, such as FX term deposits and U.S. dollar-denominated BI bonds, two market observers who are monitoring the situation closely told Reuters.
Such placements have reached between $30 billion to $50 billion, they estimated, speaking on condition of anonymity to avoid any repercussions for speaking out.
BI's spokesperson Ramdan Denny Prakoso did not respond to request for comment.
BI could still use all of its gross FX reserves on currency market interventions, but the central bank must pay banks back when its instruments mature, which is a rollover risk, one of the sources said.
"If there are no more capital inflows or if the trade balance worsens, then the risk is more elevated," the source said.
Over the weekend, BI Governor Perry Warjiyo and Finance Minister Purbaya Yudhi Sadewa agreed to boost asset yields to attract foreign capital inflows to support the rupiah. The yield for Indonesia's 10-year government bonds jumped to 7.142% on Monday from Friday's closing of 6.902%.
BI last month raised interest rates by an outsized 50 basis points. Its next policy meeting is scheduled for June 17-18. - Reuters
