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Harambe: Bloomberg: Indonesia Says New York Fed Offers $60 Billion Credit Line … Rupiah rose 1.3%

(4/7/20)

Indonesia’s central bank said the New York Federal Reserve will provide it with a $60 billion repurchase facility to help with liquidity needs amid a dollar shortage triggered by the coronavirus outbreak.

Bank Indonesia has no plan yet to use the facility, Governor Perry Warjiyo told investors on a conference call on Tuesday. The agreement on the credit line was a vote of confidence in the domestic economy, he said.

The rupiah has been the hardest hit in Asia this year, dropping more than 14% against the dollar, as investors pulled money out of emerging markets and fled to the safe-haven greenback, triggering liquidity shortages. Bank Indonesia has taken aggressive steps to stem the fallout, draining $9.43 billion from its foreign reserves last month, according to figures released earlier Tuesday.

Indonesia’s reserves of about $121 billion are ample and the Fed’s credit line was a “second line of defense in case we need liquidity in dollars,” Warjiyo said.

“The repo line will give Bank Indonesia access to dollars if needed and helps to ease pressure in the near-term,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group in Singapore. “In the current volatile market environment, sentiment and perception is important. The line will allow BI to access dollars without needing to sell U.S. Treasuries held in their reserves.”

The Fed said March 31 it was setting up a temporary repurchase agreement facility for international monetary authorities to help support financial markets. The facility allows central banks to temporarily exchange their U.S. Treasury securities held with the Federal Reserve for U.S. dollars.

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Bank Indonesia lowered its benchmark rate in March for the second month in a row and has signaled more easing may be in the pipeline as it looks to provide stimulus to support rapidly deteriorating growth prospects for Southeast Asia’s biggest economy.

While the central bank still sees room to lower rates, further easing may be risky “amid the current climate” and the bank’s priority is to guard the currency, Warjiyo told an online news conference. Bank Indonesia will coordinate with other authorities to combat the spread of the virus and its impact on the economy, he said.

The rupiah and bonds rallied on the news of the repo facility. The currency rose 1.3% to 16,200 to a dollar, the most since January 2019, while the yield on benchmark 10-year rupiah sovereign bonds fell 7 basis points to 8.14%, the first decline in seven days.

https://www.bloomberg.com/news/articles/2020-04-07/indonesia-says-new-york-fed-will-provide-60-billion-credit-line