Research

A Lonely Fight By Bank Indonesia

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Algo Research Team

Market | Oct 18, 2023 | Views: 89

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Key Summary:

  • Regression analysis on FX reserves function
  • BI policy to repatriate USD export proceeds
  • FX reserves vs. Commodity exporters

In this research, we use a quantitative method to demonstrate how bond flows in the country are statistically significant to determine FX reserves position. On the other hand, the narrative that trade surpluses and FDI help support the currency is statistically incorrect. As a matter of fact, both the trade balance and FDI have a negative correlation with FX reserves.


This leaves Bank of Indonesia (BI) as the only line of defense against a depreciating currency and more incentives (and enforcement) are needed to push exporters repatriate back their USD proceeds to the country. This is important to ensure macro stability in the country, given that IDR has depreciated by 7% since its low in May-23 to reach 15,700-15,800 amid global monetary tightening outlook.

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