Indonesia intervenes on behalf of Rupiah

The Central Bank of Indonesia admitted that it has been intervening on behalf of its domestic currency, the Rupiah. However, it is not trying to depreciate its currency like other developing countries in the region. Rather, it is fighting to prop up its currency to stem recent declines, caused by two distinct phenomena. First, when the Federal Reserve raised interest rates, many investors moved money back into American treasuries. Second, many Japanese firms have unexpectedly begun to repatriate more of their profits earned in Indonesia, which have been substantial of late. In response, Indonesia's Central Bank has been selling off USD, and buying Indonesian bonds in bulk. AFX News Financial reports:

A sell-off by foreign investors in the stock market has also led to increasing demand for dollars.  "In fact dollar supply was limited. It was just about 300-400 million dollars per day. So even a small increase in demand could trigger a big volatility," a bank official said.

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