Bank Indonesia and Finance Ministry Share Burden to Stabilize Exchange Rate

JAKARTA, Investortrust.id – Bank Indonesia (BI) and the Ministry of Finance are intensifying their burden-sharing strategy to stabilize the rupiah while securing funding for government spending. The central bank is also preparing instruments to manage foreign exchange earnings from natural resources, which, starting March 1, 2025, must be retained domestically for a minimum of one year instead of the previous three months.

As part of its monetary policy operations to ensure monetary stability, BI is also prepared to purchase Rp 170 trillion ($10.88 billion) in government bonds from the secondary market to support liquidity and manage debt obligations, including Rp 100 trillion in maturing pandemic-era burden-sharing debt. 

"In the face of rising global uncertainty, if capital outflows from government bonds increase, we act to ensure higher inflows into Bank Indonesia’s rupiah securities,"  said Governor of Bank Indonesia Perry Warjiyo during a breakfast meeting with leaders of the Indonesian Chamber of Commerce and Industry (Kadin) at the central bank’s headquarters in Jakarta on Wednesday, Feb. 12, 2025.

"When government bonds are selling well, we lower the yield on our securities to maintain inflows. Since the stock market is under pressure, reversing capital flows into equities is more challenging," he said.  

Managing Capital Flows Amid Global Economic Shifts

Perry noted that with foreign investors favoring U.S. markets due to a strengthening economy and rising yields, Indonesia’s options for attracting capital inflows are limited to government bonds (SBN) and Bank Indonesia’s securities (SRBI). Maintaining attractive yields on these risk-free investments requires strong coordination between fiscal and monetary authorities.

"Our foreign exchange reserves remain strong—recently reaching $156.1 billion, well above levels seen in the 1997-1998 financial crisis. However, we must manage this as a long-term battle. With global trade tensions likely to persist, we must ensure economic stability and security," Perry stated.

Extending the Holding Period for Export Earnings

BI is also backing the government’s policy to extend the mandatory holding period for foreign exchange earnings from natural resources (DHE SDA) to one year, effective March 1. To support exporters, the central bank is designing two to three new investment instruments where funds from these accounts can be allocated.

"We are preparing Bank Indonesia Foreign Exchange Securities with maturities of 6, 9, and 12 months, which can be bought and traded in the secondary market. We are also introducing Bank Indonesia Foreign Exchange Sukuk and expanding hedging options," Perry explained.

Coordination with the Financial Services Authority (OJK) will ensure that special foreign exchange accounts for export earnings remain accessible and integrated across financial sectors.

"This falls under OJK’s authority, but from BI’s side, we are adding foreign exchange sukuk, foreign exchange securities, and expanded hedging instruments to the mix," he added.

BI Prepares Rp 170 Trillion for Government Bond Purchases

As part of its monetary policy operations, BI stands ready to purchase Rp 170 trillion ($10.88 billion) worth of government bonds (SBN) in the secondary market, including debt-switching related to pandemic-era burden-sharing agreements.

"Some Rp 100 trillion of pandemic-era debt matures this year. We are ensuring that debt-switching remains aligned with monetary policy. After calculations with Firman Mochtar, Head of BI’s Monetary Policy Department, we are set to buy Rp 170 trillion in government bonds from the secondary market," Perry confirmed.

Ensuring exchange rate stability remains BI’s top priority.

"As the U.S. dollar continues to strengthen, maintaining rupiah stability in line with peer economies is crucial. We actively intervene and maintain sufficient foreign exchange reserves to stabilize the currency," he asserted.

Perry concluded by stressing the importance of long-term financial stability through fiscal-monetary coordination.

"The first priority is exchange rate stability, which is BI’s responsibility. The second is managing government bond purchases while ensuring monetary policy consistency. With solid reserves and careful planning, we will continue safeguarding Indonesia’s economic stability," he stated.