Indonesia Recession, BI Governor Perry Warjiyo: The Rupiah Exchange Rate Potentially Strengthens

Governor of Bank Indonesia (BI), Perry Warjiyo. (Photo: Bank Indonesia)

JAKARTA - Indonesia has officially entered the brink of recession after two consecutive quarters of contraction. In the second quarter the economy was minus 5.32 percent, while in the third quarter it contracted 3.49 percent. Even so, Bank Indonesia sees that the rupiah has the potential to continue to strengthen.

Governor of Bank Indonesia (BI) Perry Warjiyo said that the development of the rupiah exchange rate began to move stable, even tending to strengthen significantly by 17.8 percent until November 9, 2020. After previously, the rupiah was depressed to a level of Rp. 16,575 per US dollar (US). on March 23.

"Now the rupiah exchange rate is traded at around Rp. 14,100. We see that the rupiah exchange rate still has the potential to strengthen," he said, during a working meeting with Commission XI of the DPR, Thursday, November 12.

Perry said that the strengthening of the rupiah was inseparable from the various exchange rate stabilization policies that were continuously carried out by BI. The strengthening of the rupiah was also influenced by the political stability that occurred in the US after the election took place in November 2020.

In addition, he said, looking at Indonesia's economic conditions, the rupiah exchange rate was still far below its fundamental value. Because of that, he believes that the rupiah will still be able to strengthen.

For example, said Perry, inflation until October was still quite low at the 1.44 percent level. Meanwhile, the current account (CAD) was still low in the second quarter of this year, namely in the range of 2.9 billion US dollars.

Then, the attractiveness of domestic financial assets was considered high and the risk premium tended to decline. Perry said that his party would strengthen the stability policy of the rupiah exchange rate to support Indonesia's economic recovery.

"We see that the rupiah exchange rate still has the potential to strengthen considering the current level is fundamentally undervalued," he said.

Not only that, Perry also saw several risk indicators on financial markets starting to subside, such as Credit Default Swap (CDS) which was in position 73 and VIX Index at position 26 despite high financial market uncertainty.

"In global financial markets, uncertainty has begun to decline, although it remains high due to geopolitical factors and the second wave of the COVID pandemic. VIX and CDS fell, especially in the months of November after the US elections," he explained.