Bank Indonesia (BI) Governor Perry Warjiyo has said that under the current exchange rate, the rupiah was still undervalued and could, therefore, further strengthen against the US dollar in the coming days.
“The strengthening rupiah will support the effort to narrow the current account deficit,” Perry said in Jakarta on Wednesday as quoted by kontan.co.id.
The rupiah has stood at between Rp 14,000 and Rp 14,200 per US dollar since earlier this week.
Perry pointed out several factors that would support the rupiah’s appreciations. Firstly, the Fed Fund rate hike is estimated to occur only twice this year, compared to four times last year.
Secondly, investors’ confidence in the Indonesian economy is gradually recovering, as indicated by the significant capital inflow to Indonesia through stocks and government debt papers — reaching Rp 19 trillion (US$1.35 billion) — since early January.
Thirdly, Perry said the Indonesian fundamental economy was also strengthening, indicated by stable economic growth, low inflation rate and the narrowing fiscal deficit in 2018, which was much lower than the deficits in previous years.
The central bank also forecasts a narrowing current account deficit this year, which is estimated to be 2.5 percent of the gross domestic product (GDP) from about 3 percent last year.
Perry also saw a better foreign exchange market mechanism marked by the increase in liquidity.
“It is not only the mechanism in the spot market, but also in the swap market and in DNDF [domestic non-deliverable forward] market that we just launched in November last year,” he added.