Triyan Pangastuti, Jakarta – Indonesia's foreign exchange reserves swelled to $130.5 billion in May, up from $127.9 billion in April, as the government took out more loans from foreign creditors, the country's central bank said in a statement on Monday.
Foreign investors also returned in droves in May to buy government bonds, bringing back critical foreign exchange supply for domestic importers and companies who still have to pay back overseas debts during the coronavirus pandemic.
"Our foreign exchange reserves are equivalent to 8.3 months of imports or 8 months of imports plus payment of the government's foreign debts and are above the international adequacy standard of around three months of imports," Onny Widjanarko, Bank Indonesia's (BI) executive director of communication, said in the statement.
Onny said BI was confident the reserves are enough to keep the country's financial sector stable and its economic outlook favorable.
According to the central bank's data, more foreign capital inflow began to enter Indonesia's bond market in the second week of May, booking Rp 2.97 trillion in net buy.
The net buy amount increased to Rp 6.15 trillion in the third week before cooling down to Rp 2.54 trillion in the fourth.
In the first week of June, the net inflow jumped to Rp 7.01 trillion, Onny said.
Josua Pardede, an economist at Bank Permata, said the foreign investors' return to the stock and bond markets has helped to stock up the foreign exchange reserves.
"In May, foreign investors brought in capital inflow to Indonesia of $546 million in the stock market and $466 million in the bond market," Josua said.
The yield of 10-year government bonds fell 53 bps to 7.35 percent last month. Bond yield moves inversely to its price.
"The effect of the foreign investors' re-entry could also be seen the fluctuations of the rupiah, which since the beginning of May had gained 1.6 percent," he said.
The foreign exchange market also became less volatile in May. The average volatility in the rupiah's exchange rate fell to 15.6 percent from the previous month's 21.3 percent.