by Bambang Purwanto
JAKARTA, June 13 (Xinhua) -- The idea to apply a "new normal" scenario amid the COVID-19 pandemic was announced by the Indonesian government early this week with the hope of recovering the national economy and at the same time raising a positive sentiment to the Indonesian currency rupiah in the financial market.
The Indonesian government announced on Saturday that the COVID-19 cases in Indonesia increased by 1,014 within one day to 37,420, with 43 more deaths bringing the total number of fatalities to 2,091.
The Indonesian currency fluctuated this week despite intervention of the central bank, Bank Indonesia (BI), in the spot market and Domestic Non-Deliverable Forward (DNDF) market.
At the closing session of the spot market on Friday afternoon, rupiah weakened to 14,204 per U.S. dollar from 14,180 against the greenback at the opening session in the morning of the same day, and from 13,925 on Thursday.
According to Head of BI's Monetary Management Department Nanang Hendarsah, the weakening of rupiah on Friday was due to the global market sentiment following the loss of the stock market in the United States.
Market panic occurred in the United States for fear of a possible second wave of COVID-19 cases. So far, the deadly virus has infected over 2 million people in the country.
The market also responded negatively to the U.S. Federal Reserve's dismal outlook for the economy.
Nevertheless, Hendarsah said there was still a chance for strengthening the Indonesian currency due to the positive sentiment from domestic economic fundamentals following the continuing decline in the current account deficit and maintained inflation rate.
Bank Indonesia would continue to maintain the stability of the rupiah exchange rate by intervening in the spot market, and provide liquidity for the DNDF market, he said, adding that the central bank would also stabilize the market for state securities in anticipation of massive releases by foreign investors.
Echoing Hendarsah's views, Head of Monex Investindo Futures' Research and Education Ariston Tjendra said the rupiah still has the opportunity to strengthen with the reopening of economic activities in many countries including Indonesia.
According to Tjendra, the market hoped the economy would soon recover with the resumption of economic activities, and moreover the economy is currently still supported by stimulus packages from the central bank and the government.
Indonesia's senior economist Faisal Basri observed that the measures taken by the government, which took advantage of the yields from the issuance of global bonds, and those of Bank Indonesia, which intervened in the market, have managed to strengthen the rupiah in the past several days, but this week the currency continued to weaken.
"We should notice that the strengthening of rupiah is a reflection of huge supplies of dollars entering Indonesia through the issuance of the country's global bonds. This is nothing to do with the government's effort to contain the COVID-19 pandemic," Basri said at a recent virtual discussion with Institute for Development of Economics and Finance.
The issuance of the government's debt securities in the denomination of rupiah with high interest has also contributed to the recent strengthening of rupiah, he said, adding that such a policy would not last long, however, and was even dangerous for the liquidity of the national financial system.
As foreign investors bought the government's bonds only for a short period, they might soon resell the bonds they hold, and later on Bank Indonesia should intervene in the market by using the foreign exchange reserves to fulfill the liquidity, he added.
On the other hand, Coordinating Minister for the Economy Airlangga Hartarto said the government's measure to contain the COVID-19 pandemic based on data was positively appreciated by the market. It was reflected in the strengthening of rupiah exchange rate, and the Composite Stock Price Index (CSPI) which had touched the 4,950 level.
"We see that the rupiah exchange rate can reach 14,000 per U.S. dollar and the rising stock price index shows that the government and the (COVID-19) Task Force are working on the right track," Hartarto said recently.
Even though the exchange rate and index fluctuated, the senior minister noted that the foreign exchange reserves at Bank Indonesia that reached 130 billion dollars indicated strong confidence in the Indonesian economy.
The World Bank predicts that Indonesia's Gross Domestic Product (GDP) would stagnate due to the impact of the COVID-19 pandemic.
The World Bank also projects that the world economy would enter a recession in 2020. The global economy would shrink by 5.2 percent this year, the deepest recession since World War II. Enditem
