Indonesia seals $10b currency swap with South Korea

Reading Time: 2 minutes

rupiah IDRIndonesia and South Korea on October 12 agreed to enter a bilateral, three-year currency swap deal worth up to $10 billion, which could help the Southeast Asia country better defend a rupiah hit by capital flight.

The deal, part of a planned trade pact, would bring Indonesia’s total bilateral currency swaps signed this year to an equivalent of $37 billion, including a $15 billion deal with China and a $12 billion deal with Japan.

“This Bilateral Currency Swap Arrangement aims to promote bilateral trade and further strengthen financial cooperation, an objective of mutual interest to both countries,” Bank Indonesia spokesman Difi A. Johansyah said in a statement.

“The two sides agree that such an arrangement will contribute positively to the stabilisation of the regional financial market and strengthen bilateral economic and financial cooperation to counter the growing uncertainties in the global economy,” Difi said.

Either of the two countries can swap 10.7 trillion won ($9.99 billion) for Rp 115 trillion ($10.1 billion) or vice versa under the deal, which South Korea’s finance ministry said was agreed between finance ministers and central bank chiefs in Washington.

They were attending the International Monetary Fund and World Bank annual meetings. South Korea and Indonesia are both members of the Group of 20 major economies.

The additional swap deal puts Indonesia in the better position to anticipate global capital outflow from emerging markets should the US Federal Reserve scale down it’s bond-buying programme.

Indonesia’s foreign exchange reserves rose to $95.7 billion in September from $93 billion in August, thanks in part to various monetary policy measures taken by the central bank to help arrest rupiah depreciation against the dollar in recent weeks.

Bank Indonesia, the central bank, maintained its benchmark interest rate at 7.25 per cent last week after raising the policy rate by 1.5 percentage points from mid-June this year.

The moves would absorb rupiah liquidity from the market, which could prop up the currency against the US dollar.

The central bank has been using reserves to intervene in the country’s foreign exchange market to defend the rupiah, also relying on the reserve to repay the country’s foreign exchange debt. Recent intervention — selling dollars for rupiah — has not been effective in curbing rupiah depreciation against the dollar.

Indonesia’s current-account deficit — a broader measure of trade and services, widened to $9.8 billion in the second quarter of this year or 4.4 per cent of gross domestic product.

Do you like this post?
  • Fascinated
  • Happy
  • Sad
  • Angry
  • Bored
  • Afraid

Reading Time: 2 minutes

Indonesia and South Korea on October 12 agreed to enter a bilateral, three-year currency swap deal worth up to $10 billion, which could help the Southeast Asia country better defend a rupiah hit by capital flight.

Reading Time: 2 minutes

rupiah IDRIndonesia and South Korea on October 12 agreed to enter a bilateral, three-year currency swap deal worth up to $10 billion, which could help the Southeast Asia country better defend a rupiah hit by capital flight.

The deal, part of a planned trade pact, would bring Indonesia’s total bilateral currency swaps signed this year to an equivalent of $37 billion, including a $15 billion deal with China and a $12 billion deal with Japan.

“This Bilateral Currency Swap Arrangement aims to promote bilateral trade and further strengthen financial cooperation, an objective of mutual interest to both countries,” Bank Indonesia spokesman Difi A. Johansyah said in a statement.

“The two sides agree that such an arrangement will contribute positively to the stabilisation of the regional financial market and strengthen bilateral economic and financial cooperation to counter the growing uncertainties in the global economy,” Difi said.

Either of the two countries can swap 10.7 trillion won ($9.99 billion) for Rp 115 trillion ($10.1 billion) or vice versa under the deal, which South Korea’s finance ministry said was agreed between finance ministers and central bank chiefs in Washington.

They were attending the International Monetary Fund and World Bank annual meetings. South Korea and Indonesia are both members of the Group of 20 major economies.

The additional swap deal puts Indonesia in the better position to anticipate global capital outflow from emerging markets should the US Federal Reserve scale down it’s bond-buying programme.

Indonesia’s foreign exchange reserves rose to $95.7 billion in September from $93 billion in August, thanks in part to various monetary policy measures taken by the central bank to help arrest rupiah depreciation against the dollar in recent weeks.

Bank Indonesia, the central bank, maintained its benchmark interest rate at 7.25 per cent last week after raising the policy rate by 1.5 percentage points from mid-June this year.

The moves would absorb rupiah liquidity from the market, which could prop up the currency against the US dollar.

The central bank has been using reserves to intervene in the country’s foreign exchange market to defend the rupiah, also relying on the reserve to repay the country’s foreign exchange debt. Recent intervention — selling dollars for rupiah — has not been effective in curbing rupiah depreciation against the dollar.

Indonesia’s current-account deficit — a broader measure of trade and services, widened to $9.8 billion in the second quarter of this year or 4.4 per cent of gross domestic product.

Do you like this post?
  • Fascinated
  • Happy
  • Sad
  • Angry
  • Bored
  • Afraid