Tuesday, 18 June 2019 | 14:37 WIB

BI: Rupiah May Strengthen in The Remaining Year

BI: Rupiah May Strengthen in The Remaining Year (special)

YOGYAKARTA, NETRALNEWS.COM - Bank Indonesia (BI) views the erosion of global economic uncertainty because a full picture of the dovish of the US Central Bank's policy, The Federal Reserve, will flow foreign capital into the domestic sector which has also helped strengthen the rupiah in the remainder of the year.

Head of BI Monetary Management Department Nanang Hendarsah in Yogyakarta on Saturday (03/23/2019), said that one of the biggest pressures of global economic uncertainty, namely the normalization of monetary policy at the US Central Bank, has now subsided.

Global economic pressures on emerging market financial markets, including Indonesia, are now sourced from a trade war between the two superpowers of the United States and China and the dynamics of Brexit.

"During 2018 there were three global factors that depressed the rupiah exchange rate. But in 2019, one of the three global factors that suppressed the rupiah exchange rate, has found a bright spot," Nanang said.

The source of the easing pressure is the prospect of the Fed's interest rate policy. Because, on Wednesday (03/20/2019) night local time, the Fed kept the benchmark interest rate at 2.25 - 2.5 percent or a median of 2.375 percent.

Determination of interest rates reinforces expectations of market players for a more soft (dovish) policy. The Fed is also changing the signal for the direction of interest rates in the medium term, which implies a lower increase in the benchmark interest rate in the next two years.

"Of these three factors, at least in 2019 one thing was clearer. As the results of the FOMC [The Federal Open Market Committee] on March 21, signaled increasingly clear that they would not raise interest rates, at least for 2019. This means that one global factor will clearly provide support for the stability of the rupiah, "Nanang said.

That is one reason why the Monetary Authority is optimistic that the rupiah exchange rate will continue to strengthen. The volatility of the rupiah is believed by BI to be lower than 2018. It is hoped that it will provide a more conducive business climate and maintain economic stability.

However, the direction of BI policy for the benchmark interest rate is still maintained to maintain stability from external pressure.

Nanang said that external pressure could increase this year. The Central Bank needs to be aware of the dynamics of the global economy which can provide a spillover effect on developing countries such as from slowing economic growth in developed countries, namely the United States, China, Germany and France.

"Indeed, there are other factors that arise, namely the global economic situation which has lately weakened or declined. But based on several references, it will rise at the end of 2019," he said.

From within the country, BI's optimism towards strengthening the rupiah exchange rate is getting stronger because of some fundamental economic parameters.

Nanang said that there were many positive indicators of the domestic economy, for example, economic growth was maintained and inflation was low.

"Domestic should also provide support. First inflation, our inflation is below three percent. Our core inflation is below three percent is quite long. Both economic growth also remains stable above five percent," he said.

At the end of the year, Nanang believed that the target of reducing the current account deficit to 2.5 percent of GDP could be achieved. In 2018, the current account deficit reached 2.98 percent of GDP.

"So this year the stability of the exchange rate will be better than in 2018. Fundamentally stability in 2019 is better," he said, as reported by Antara.