Finance Minister Purbaya Yudhi Sadewa is preparing intervention measures in the bond market through the Bond Stabilization Fund (BSF) instrument in response to the rupiah’s sharp depreciation. 

The rupiah exchange rate weakened beyond IDR 17,500 per USD 1 during Tuesday morning trading on 12 May. This marked the weakest level for the rupiah in history. 

Purbaya said the government would begin entering the bond market to prevent government bond yields from rising excessively. The move is intended to support Bank Indonesia in maintaining exchange rate stability. 

“Tomorrow we may start helping by entering the bond market,” Purbaya said at the Finance Ministry office in Central Jakarta on Tuesday, 12 May. 

According to him, excessively high bond yields could trigger foreign investors to exit the domestic financial market due to capital losses on their investments. If large-scale capital outflows occur, pressure on the rupiah could intensify further. 

“We are intervening in the bond market so yields do not rise too high. If yields rise too high, foreign investors holding bonds here will face capital losses, and they will exit,” he said. 

Purbaya explained that the government would activate instruments available under the Bond Stabilization Fund scheme to maintain stability in the bond market. 

However, he emphasized that the primary responsibility for maintaining exchange rate stability remains with Bank Indonesia as the monetary authority. 

“You should ask the central bank, not me. The central bank has only one task, maintaining exchange rate stability, and we leave that to the experts there,” Purbaya said. 

On the other hand, Purbaya assured that the rupiah’s weakening remains within limits manageable under the State Budget (APBN). He revealed that the government had already been using exchange rate assumptions higher than the official APBN assumption in several internal calculations. 

“The state budget is still relatively safe. But we will try to help the exchange rate, helping BI little by little if possible,” Purbaya said. 

This article is published in partnership with Katadata 

Original article here