CORE: Currency swaps require fiscal support to maintain rupiah stability

Jakarta (ANTARA) - Economist from the Center of Reform on Economics (CORE) Indonesia, Dipo Satria Ramli, assesses that cooperation in currency swaps between countries and diversification of non-dollar financing can help maintain rupiah stability amid global pressures.

Nevertheless, he believes that such steps are not sufficient to strengthen the rupiah’s fundamentals without support from improvements in domestic factors, particularly fiscal perceptions.

“Currency swaps and non-dollar financing diversification can (help) as stabilisation for the rupiah, but they are not a cure for strengthening the rupiah’s fundamentals,” Dipo told ANTARA in Jakarta on Wednesday.

Currency swap cooperation is a mechanism for exchanging currencies between central banks of countries to enhance liquidity and reduce dependence on the US dollar in transactions or financial market stabilisation.

According to him, non-dollar financing cooperation also sends a signal to the market that Indonesia has liquidity reserves to face external turbulence.

“In essence, currency swaps and non-dollar financing act as reserve funds if there is a massive capital outflow,” he said.

Dipo assesses that pressure on the rupiah does not only come from global factors, such as the strengthening US dollar and geopolitical uncertainty, but also from domestic factors.

He said that the rupiah’s weakening against several regional currencies in recent times indicates market participants’ concerns about the domestic situation.

“The rupiah’s weakening is not only due to global factors, but also domestic ones,” he stated.