Sri Mulyani and BI Boss open their voices, this is actually the reason why the Rupiah has gone down!

Jakarta, CNBC Indonesia – The talk that the Indonesian economy is doing well has often come out of the government's mouth recently. Although in reality there are many problems in the country that directly impact society.

One of them is the rupee. The weakening trend continued and pushed the US dollar to cross the Rp 16,400 level.

It's true that there are external factors that cause this. Two of them are uncertainty over the US benchmark interest rate policy (federal funds rate) and geopolitical tensions in several regions.

Domestically, this has also contributed to the weakening of the rupee, namely negative sentiment on the fiscal side. Investors fear that the management of the State Revenue and Expenditure Budget (APBN) of President-elect Prabowo Subianto's government is reckless. Alongside rumors that the APBN deficit would have exceeded the limit of the state finance law, namely 3% of GDP and that the debt rate would have reached 50% of GDP.

This then made President Joko Widodo (Jokowi) nervous. After the Bank Indonesia (BI) Board of Governors (RDG) meeting last week, Jokowi summoned senior officials from the Financial System Stability Committee (KSSK).

Present were Finance Minister Sri Mulyani Indrawati, LPS Board of Commissioners Chairman Purbaya Yudhi Sadewa, BI Governor Perry Warjiyo and Financial Services Authority Board of Commissioners Chairman Mahendra Siregar.

So what actually happened to the rupee, see the following explanation by Sri Mulyani and Perry Warjiyo!

During a one and a half hour meeting yesterday afternoon, Sri Mulyani admitted that she had clearly explained to Jokowi the dynamics of the current financial market. Including the sentiment factors that influence financial market participants regarding the process of preparing the State Revenue and Expenditure Budget (APBN) for the financial year 2025, of which many participants suspect an increase in terms of rate of debt.

“Inform the President about the latest developments in market dynamics as well as the progress of our APBN discussions with the DPR, as we are in the process of preparing RAPBN 2025,” said Sri Mulyani.

Sri Mulyani revealed that the pressure on the rupee in recent days was actually caused by global factors, such as the strength of the US economy, which led many market participants to suspect that its central bank would still have to hard to reduce the Fed. Reference interest rate of the fund. Additionally, there are differences in the direction of interest rates across developed countries as the European Central Bank has effectively lowered its benchmark interest rate.

As for domestic factors, especially the fundamental factors of the Indonesian economy, he emphasized that nothing was the cause of the weak movement of the rupiah exchange rate. Sri Mulyani provided evidence of good Real Sales Index figures which reflect that public consumption will still be strong, as well as Mandiri Expenditure Index figures, Consumer Confidence Index, Consumption cement, electricity and the purchasing managers index which are still expansive.

Therefore, he did not hesitate to say that although the pressure on global financial markets is currently strong, causing the weakening of various global currencies, including the rupee, against the US dollar, and if capital flows Foreigners continue to flow frequently, the Indonesian economy will continue to grow strongly in the second quarter of 2024 as in the first quarter of 2024 which increased by 5.11%.

“This is a good enough basis to project our economic growth in the second quarter, which will be maintained as what happened in the first quarter. Bank credit has also increased, in this case, the amount of credit expansion , both investment credit, working capital and consumption”, underlined Sri Mulyani.

He stressed that the government would also maintain the APBN as a policy instrument aimed at maintaining national economic stability in the future. This year alone, he assured that the deficit would respect the maximum limit set at 2.8%, although, as is known, the deficit target for 2024 agreed with the DPR was only 2.29% of GDP.

Even though the deficit will reach its maximum limit this year, he stressed that in terms of debt financing it will not increase, because the government has the option of using the remaining budget surplus or SAL in 2023, which will reach IDR 100,000 billion. It thus ensures that government debt securities or SBNs are always able to maintain good levels of return.

“As is known, this year's deficit is estimated at a maximum of 2.8%. We will maintain financing using the remaining budget surplus or last year's SAL which reached IDR 100 trillion. We will use it to reduce the need for financing across the market and this can maintain the returns of the SBN,” Sri Mulyani said.

For the APBN 2025 which is currently being prepared with the DPR, he confirmed that it will also be designed according to the range defined in next year's Government Work Plan or RKP and the economic framework and policy principles budget (KEM-PPKF). of 2.21%-2.8%. He stressed that this wide range of deficit was intended to meet the programs of President-elect Prabowo Subianto.

“The message is that the APBN must be maintained carefully because it is an important instrument for any government in the future. And also in terms of sustainability and commitment to maintaining the deficit at the 3% level With the debt-to-GDP ratio remaining at an affordable and prudent level, “So that this can become a basis for the stability of this new government, we will continue to communicate,” he said.

Meanwhile, BI Governor Perry Warjiyo explained to President Jokowi that the weakening that occurred over the past few days to exceed IDR 16,400 was largely triggered by short-term sentiment factors, not the fundamental factors that formed it. Because, he stressed, if we consider fundamental factors, the rupee is expected to strengthen.

“Judging by fundamentals, our rupee exchange rate is expected to strengthen. What did the minister say about fundamentals? Our inflation is lower at 2.8%, our growth is also high at 5, 1%. Credit also increased by 12%, as did terms “Our economy, including good returns on investment,” Perry said.

He highlighted to Jokowi the sentiment factors currently putting pressure on the rupiah, including financial market participants who are still confused about the possibility of reducing the Federal Reserve's benchmark interest rate. BI said Perry believes the decline is still likely to occur this year, but only once at the end of 2024.

In addition to general sentiment factors, he pointed out that what had a strong influence in the country was the high need for corporate dollars in the second quarter of 2024, for example for repatriation and payment of dividends. However, in the third quarter of 2024, he assured that this sentiment factor would not cause further depreciation of the rupee, as the need for US dollars for this purpose had reduced.

According to Perry, the final sentiment within the country that has a strong influence on the weakening of the rupee is the problem of financial market participants' perception of fiscal sustainability in the future or in 2025. “As “As Ms Sri Mulyani said, the problem of perception of future fiscal sustainability, that causes the sentiment then to become a pressure on the rupee exchange rate,” Perry explained.

To maintain the stability of the rupiah exchange rate, Perry emphasized to Jokowi that BI is still in the market to intervene. Indeed, according to him, BI's foreign exchange reserves or cadev are still more than sufficient, or $139 billion, to be used as an intervention tool.

“This is a cash intervention, forward, or also regarding the stability of the SBN. We can buy SBN in the secondary market. We will also coordinate with the Ministry of Finance, our securities are in rupiah short term to attract inflows so that fund outflows do not continue and strengthen the stability of the rupee,” Perry said.

Perry confirmed that the flow of foreign capital to maintain the supply of US dollars in the country is still occurring, for example through purchases of instruments from Bank Indonesia Rupiah Securities or SRBI which reached Rp179.86 trillion. In addition, the investment of export earnings in dollars or DHE in domestic financial instruments reached IDR 13.9 billion.

“The conclusion is that the rupee has a fundamental trend, don't ask questions day to day, it is a trend, the rupee will have a stronger trend because inflation is low, growth is good, the factors Fundamentals are good. Day to day, month to month “Month to month, week to week, the sentiment factor will influence its movements,” Perry said.

[Gambas:Video CNBC]

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