Indonesia vows to defend Rupiah

The central bank of Indonesia says it will perform more interventions to fill liquidity shortage in the domestic dollar market as well as to prolong rupiah's recent stability.

"We must be bold in entering the market to reduce the gap between supply and demand in the foreign exchange market," Bank Indonesia (BI) Deputy Governor Hartadi A. Sarwono told reporters yesterday.

The gap existed because most foreign direct investments (FDI) coming into Indonesia were in the form of tangible goods and raw materials, with only 20 per cent coming in the form of dollars, he explained.

The rupiah has become more stable recently and Hartadi said that the central bank was keen to prolong the situation by using "all existing monetary instruments possible". BI would address the supply-demand gap predicament in the local currency market, and further intervene when required, according to Hartadi.

"If the dollar demand is high — say, from soaring oil imports, for instance — then we will perform more interventions," he said.

The rupiah slid 0.2 per cent to 9,653 on Friday, according to prices from local banks compiled by Bloomberg. The recent stability of the rupiah has boosted market confidence, as the currency's one-month implied volatility — a measure of expected moves in exchange rates used to price options — declined to the lowest level since January 9.