Bank Indonesia (BI) Governor Perry Warjiyo has announced that the central bank will intervene in the currency market to address the impact of market uncertainty linked to the closure of some U.S. banks and problems at Credit Suisse. Speaking after a second straight meeting where interest rates were left unchanged, Warjiyo noted that the closure of three U.S. banks and problems at Credit Suisse have increased market uncertainty, halting capital flows to emerging markets and pressuring currencies. Despite this, Warjiyo underlined that he saw no direct impact on local banks.
The decision to intervene in the currency market is aimed at maintaining market stability and preventing excessive currency volatility. Bank Indonesia has a history of intervening in the currency market, with its most recent intervention taking place in January 2021, where the central bank bought $2 billion in bonds to support the rupiah.
The current volatility in the currency market is largely attributed to the closure of some U.S. banks and the problems at Credit Suisse. This has led to market uncertainty and a decline in capital flows to emerging markets, including Indonesia. The weakening of emerging market currencies such as the rupiah has also put pressure on local economies, making it harder for businesses to service debt and leading to higher inflation.
Despite the challenges posed by the closure of some U.S. banks and the problems at Credit Suisse, Warjiyo remains optimistic about Indonesia’s economic outlook. He noted that the country’s economy has shown resilience in the face of the pandemic, with growth projected to reach 5.3% in 2021. This is largely attributed to Indonesia’s domestic consumption, which has remained strong despite the pandemic.
However, Warjiyo warned that there are still risks to Indonesia’s economic outlook, including the ongoing pandemic and the potential for a global economic downturn. As such, Bank Indonesia will continue to monitor the situation closely and take appropriate measures to maintain market stability.
In conclusion, Bank Indonesia’s decision to intervene in the currency market is aimed at maintaining market stability and preventing excessive currency volatility. The current volatility is largely attributed to the closure of some U.S. banks and the problems at Credit Suisse. Despite these challenges, Warjiyo remains optimistic about Indonesia’s economic outlook, but warns that there are still risks that need to be monitored closely.