Indonesia Finance Minister urges vigilance in handling FX volatility: Calls for careful monitoring and management

Sri Mulyani Indrawati has issued a clarion call for vigilant monitoring and meticulous management of the situation. Speaking at an event hosted by the Asia House think tank in London, Indrawati highlighted the imperative need to address the FX volatility that has gripped global markets in recent weeks.

Amidst the tumultuous fluctuations in foreign currency markets over the past month, Indonesia’s Finance Minister, Sri Mulyani Indrawati, has issued a clarion call for vigilant monitoring and meticulous management of the situation. Speaking at an event hosted by the Asia House think tank in London, Indrawati highlighted the imperative need to address the FX volatility that has gripped global markets in recent weeks.

The underlying causes of this currency turmoil, according to Indrawati, are linked to the enduring repercussions of higher-than-anticipated U.S. interest rates. She likened these rates to a metaphorical “vacuum cleaner,” drawing capital out of emerging markets, including Indonesia, and exacerbating the FX market gyrations.

Indrawati’s assessment underscores the gravity of the situation and the urgent need for proactive measures to mitigate its adverse effects. “The FX volatility that we have seen in April needs to be managed and watched carefully,” she emphasized, highlighting the delicate balancing act required to navigate through these turbulent times.

Indonesia’s domestic currency, the rupiah, has been particularly vulnerable to the onslaught of FX volatility, recently plummeting to its lowest level since the onset of the COVID-19-induced global market turmoil in early 2020. The rupiah’s 5 per cent depreciation since the beginning of the year marks the worst start to a year since then, prompting swift action from the country’s central bank.

In response to these challenges, Indonesia’s central bank implemented a surprise interest rate hike in April, aiming to stem the tide of currency depreciation and stabilize financial markets. However, the road ahead remains fraught with uncertainties, necessitating a comprehensive strategy to address the root causes of FX volatility and safeguard Indonesia’s economic resilience in the face of external shocks.

As global markets continue to navigate through choppy waters, the resolve to monitor and manage FX volatility “carefully” echoes across the corridors of power in Indonesia, underscoring the nation’s unwavering commitment to financial stability and sustainable growth