■ To stabilize the Indonesian Rupiah (IDR), which is currently under pressure and trading between IDR 16,800 to 17,000 per USD, we propose a targeted monetary intervention aimed at bringing the exchange rate down to the IDR 16,400 level. Based on impulse response function (IRF) analysis, it is estimated that every USD 1 billion of foreign reserve injection can appreciate our local currency by approximately 100 IDR points. This analysis further shows that the effect is most potent in the early periods following the shock and persists over time, albeit with diminishing magnitude. This suggests that foreign exchange interventions can be an effective tool to manage IDR volatility in the short-to-medium term.
■ To achieve 500-point appreciation from IDR 16,900 to the target level of IDR 16,400, Bank Indonesia would need to inject approximately USD 5 billion into the foreign exchange market. A two-phased strategy is advisable. In the first phase (April), an immediate injection of USD 2 to 3 billion would serve as a strong signal to markets, anchoring expectations and reducing speculative pressures. The second phase (May) would involve a follow-up injection of USD 2 billion, contingent upon observed market developments, macroeconomic indicators, and behavior of capital flows.
■ To sustain the intervention effort without compromising reserve adequacy, Bank Indonesia should also seek to reinforce its FX buffers by securing bilateral or multilateral swap lines. These arrangements will provide additional confidence to the market while preserving the central bank’s ability to respond to future external shocks.
■ Finally, while this intervention plan is based on empirical evidence, it must remain flexible and responsive to global market developments. Should external risks—such as further heightened trade war—increase, Bank Indonesia must be prepared to scale its interventions accordingly. Any further pressure on the IDR should be countered with a 25 basis point hike in the first semester of the year to ensure local currency stability.
Fithra Faisal Hastiadi, Ph.D
Senior Economist
SSI RESEARCH
