Indonesian Foreign Exchange Reserves Expected to Strengthen in August 2024

KONTAN.CO.ID - JAKARTA. Indonesia's foreign exchange reserves are projected to strengthen in August 2024, driven by the strengthening of the rupiah exchange rate and a current account deficit (CAD) that remains within the Bank of Indonesia's (BI) target range.

The rupiah exchange rate is currently on a strengthening trend and comfortably sits below Rp 16,000 per US dollar. However, on Thursday (22/8), the rupiah's spot market rate closed down 0.64% at Rp 15,600 per US dollar.

Meanwhile, the CAD for the second quarter of 2024 was recorded at US$ 3 billion, equivalent to 0.9% of the Gross Domestic Product (GDP). This is an increase from the previous quarter's deficit of US$ 2.4 billion or 0.7% of GDP.

Hosianna Evalia Situmorang, an economist at Bank Danamon, stated that the position of foreign exchange reserves in August 2024 will be optimal in line with the gradually strengthening rupiah exchange rate, which will reduce the pressure on the decline in foreign exchange reserves.

“In line with the increasing CAD, which is still within the range predicted by BI, we see that the controlled CAD and the strengthening rupiah exchange rate will optimally boost the position of foreign exchange reserves,” Ana told Kontan on Thursday (22/8).

Ana added that although the position of foreign exchange reserves will decrease from the last level in July 2024, which was US$ 145.4 billion, the impact will not be too significant as long as the rupiah exchange rate remains stable.

“Because if the foreign exchange reserves are too high due to the issuance of global bonds, it will not be optimal in terms of controlling government debt,” she revealed.

For the record, the position of Indonesia's foreign exchange reserves at the end of July 2024 was recorded at US$ 145.4 billion, an increase compared to the position at the end of June 2024 which was US$ 140.2 billion.

The increase in the position of foreign exchange reserves was mainly influenced by the issuance of government global sukuk and tax and service receipts.

The position of foreign exchange reserves at the end of July 2024 is equivalent to financing 6.5 months of imports or 6.3 months of imports and government foreign debt payments, and is above the international adequacy standard of about 3 months of imports.

Bank Indonesia believes that these foreign exchange reserves can support the resilience of the external sector and maintain macroeconomic stability and the financial system.