BI Says Rupiah is Already Undervalued, What Does It Mean?
The rupiah exchange rate is once again in the spotlight after Bank Indonesia (BI) stated that the rupiah’s current position remains undervalued, or below its fair value. This was directly conveyed by BI Governor Perry Warjiyo.
He revealed that the rupiah’s current position is not yet aligned with the national economic fundamentals. “We emphasise that the current rupiah exchange rate is undervalued compared to the fundamentals,” said BI Governor Perry Warjiyo during a press conference in Jakarta recently.
According to Perry, BI continues to take stabilisation measures for the exchange rate by increasing the intensity of interventions, both through Non-Deliverable Forward (NDF) transactions in overseas markets and spot and Domestic Non-Deliverable Forward (DNDF) transactions in the domestic market. “We continue to stabilise the rupiah exchange rate. Our foreign exchange reserves are $148.2 billion, still more than sufficient to ensure rupiah exchange rate stabilisation,” he said.
In addition, BI is strengthening the interest rate structure of monetary instruments to remain attractive for foreign portfolio investment flows into domestic financial assets. This step is also accompanied by efforts to maintain primary money growth so that market liquidity remains stable.
“Going forward, we will keep it above 10% (primary money growth), even reaching 12% to ensure adequate liquidity in the money and banking markets for the economy. This aligns with the monetary policy stance of liquidity expansion,” he said.
BI also assesses that Indonesia’s economic fundamentals remain sufficiently strong in facing global pressures, including the impact of the war in the Middle East. “What are our economic fundamentals like? Low inflation. High economic growth above 5%. Similarly, rupiah exchange rate stability. And of course, credit growth and other factors. Including our balance of payments conditions with a low current account deficit. Overall, our fundamental conditions are good and strong in facing these geopolitical conditions,” Perry explained.
The term undervalued is often used in discussions of currency exchange rates, particularly when a currency is considered not yet to reflect the true economic strength. This condition is not always bad, as on one hand it can encourage exports and investments, but on the other hand it can also increase import costs and inflationary pressures.