BI governor upbeat about stronger position of rupiah amid pandemic

BI governor upbeat about stronger position of rupiah amid pandemic

Bank Indonesia Governor Perry Warjiyo gives an online press statement in Jakarta, Friday (5/6/2020). ANTARA/Dewa Wiguna

Jakarta (ANTARA) - Bank Indonesia (BI) Governor Perry Warjiyo is buoyant about the rupiah strengthening, as the exchange rate traded on Friday afternoon went below Rp14,000 per US dollar amid the COVID-19 pandemic.

"Thank God, the rupiah continues to show signs of strengthening in line with our view that the exchange rate for today is still undervalued, so that in future, it still has the potential to strengthen," he noted in an online press statement here on Friday.

Until Friday afternoon, the rupiah traded at Rp13,855 against the US dollar and reached Rp13,960 per US dollar.

The BI governor highlighted several factors driving the rupiah to strengthen, including inflation and a low current account deficit, differences in domestic and foreign interest rates, and decreased risk premiums.

Warjiyo expounded that based on the Central Statistics Agency (BPS) data in May 2020, the inflation rate was low, reaching 2.19 percent from that of last year.

The difference in domestic and foreign interest rates for government bonds (SBN) currently stood at 7.06 percent for a tenor of 10 years.

The BI governor noted that the SBN interest rate as compared to that offered by the United States reached 0.8 percent, so the difference was significant, at 6.2 percent.

"Investment returns on Indonesian financial assets, especially SBN, are still high," he noted.

Meanwhile, other indicators also supported the strengthening of the rupiah exchange rate, including the risk premium that showed a declining trend.

Warjiyo stated that the risk premium or credit default swap (CDS) for Indonesia currently stood at 126 points, down from 245 during the previous trade.

However, the current risk premium of 126 was still higher than before the COVID-19 pandemic that touched 66-68.

"With the lower risk premium, it will support a stronger exchange rate going forward. The potential is there," he noted.

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