Market intervention best way to defend rupiah: Expert

Market intervention best way to defend rupiah: Expert


Jakarta — As the rupiah faces pressures from monetary tightening in the United States, the best way to defend the currency is by sacrificing foreign exchange to intervene in the market, says Ari Kuncoro, a professor of economics at the University of Indonesia (UI). Bank Indonesia (BI) had two basic options to keep the rupiah stable – increasing the reference rate and intervening the market by releasing foreign exchange, Ari said in Jakarta on Thursday (07/03). He predicted that pressure on the rupiah would continue because – in addition to the Federal Reserve’s plan to increase its reference four times this year – the rupiah was hit by negative sentiment from the U.S. plan to impose import tariffs of 25 percent on steel and 10 percent on aluminum. Ari called on the Indonesian government to prepare for a trade war, as countries like China, Canada and EU member states had voiced concern over the U.S. policy and were preparing retaliatory measures. “If other countries follow the EU’s countermeasures, then a trade war would break out,” Ari said, adding that the resignation of presidential economic adviser Gary Cohn on Wednesday indicated stubbornness on the part of U.S. President Donald Trump. While BI was sacrificing its reserves to defend the rupiah, he called on the government to resort to diplomacy in response to the U.S. government’s trade plans. “Diplomacy is important, as we need to work with EU, India and China to protest the U.S. If that strategy works well, the current currency turmoil will last only a month,” he said.