Indonesia’s Central Bank and the Ministry of Finance have put new measures forward to safeguard the Rupiah from extreme volatility and strengthen domestic liquidity onshore.
The Rupiah is currently traded offshore with restrictions mainly by import/ export businesses.
The new measures enforce Indonesian exporters’ funds parked overseas to be returned to Indonesia and the second element is to limit offshore borrowing.
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The Indonesian export market is huge and worth around $158 billion (2010) and imports at around $132 billion(2010). Forex reserves in Q1 2011 were at around $100 billion.
Investors can trade the IDR on the local Jakarta Futures Exchange and these new regulations seem to bolster local trade and investments.
The second aspect of the regulation can give a harsh signal to overseas investors. If the government is foreseen to be controlling the currency investors will be reluctant to invest in Rupiah and Rupiah denominated assets. As the new measures were published the USD INR fell by 4%.
Local spot FX is huge in Indonesia, locally investors can only trade in standard contract sizes; and mini and micro are more attractive as GDP per Capita is less then $5000 (2010), hence the global FX attraction. Players such as Valbury Capital have expanded their force and launched their international division in the UK.