Indonesian Foreign Exchange Reserves Predicted At 155 Billion US Dollars At The End Of 2024

JAKARTA - Indonesia's foreign exchange reserves are predicted to be in the range of 145 to 155 billion US dollars by the end of 2024.

Bank Indonesia (BI) reported Indonesia's foreign exchange reserves in position of 149.9 billion US dollars in September 2024, or a decrease of 300 million US dollars compared to 150.2 billion US dollars at the end of August 2024.

"We project that foreign exchange reserves will range from 145-155 billion US dollars by the end of this year. Therefore, we anticipate that the rupiah exchange rate will be in the range of Rp. 15,300 to 15,600 per US dollar by the end of 2024," said Chief Economist of Permata Bank Josua Pardede quoting Antara.

Josua explained that risk-on sentiment driven by expectations of a reduction in the benchmark interest rate of The Federal Reserve (The Fed) in the remainder of 2024 will begin to decrease as geopolitical tensions in the Middle East and the US labor market record strong data.

"So, put pressure on foreign exchange reserves and rupiah stability," said Josua.

Then, he continued, it is likely that risk-off sentiment will increase in the future as geopolitical tensions increase in the Middle East, especially between Israel and Iran, which could increase demand for secure assets and trigger capital outflows from emerging markets, including Indonesia.

Combined with strong US labor market data, he explained the increasing tension could also increase global oil prices, posing a risk to the advancement of disinflation in the US.

This, he continued, could delay or limit the Fed's space to lower its benchmark interest rates, thus making US assets more attractive to investors.

"As a result, the US dollar tends to strengthen against global currencies," said Josua.

If this condition continues, he estimates that BI will use its foreign exchange reserves to intervene in the foreign exchange market (varlas) and stabilize the rupiah exchange rate, so that it will potentially reduce foreign exchange reserves.

"However, if geopolitical tensions subside, there is still potential for incoming capital flows. Given the fundamentals and economic prospects of Indonesia which are relatively stronger than other countries," said Josua.

On this occasion, he explained that Indonesia recorded a net capital flow of 2.76 billion US dollars in the stock market and bonds throughout September 2024, where the ownership of foreign investors in Government Securities (SBN) increased to 1.34 billion US dollars.

"Meanwhile, foreign investors posted a net buy of USD 1.42 billion in the stock market," said Josua.

On the other hand, he continued, the Bank Indonesia Securities (SRBI) reported a net outflow of US$3.47 billion in September 2024.

Then, the government in the same period issued global bonds in two currencies listed on the Securities and Exchange Commission (SEC), each amounting to 1.8 billion US dollars and 750 million Euros.