Country Report Indonesia March 2011

Economic performance: An interest rate rise causes the rupiah to strengthen

International reserves fell to US$95.3bn in January 2011, as BI sold US dollars to stabilise the rupiah in the face of a sharp but limited withdrawal of foreign portfolio funds from stocks, bonds and central bank promissory notes. Investors withdrew funds after BI declined to raise the benchmark interest rate at its January policy meeting, giving rise to concerns that it was failing to act to curb rising inflation. However, the expectation and subsequent realisation of a rate increase in February set the rupiah on an upward trajectory, and by the end of the month the currency had risen to its highest point since June 2007, at around Rp8,800:US$1.

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