Indonesia is stabilizing markets amid virus fears, Warjiyo says

Bank Indonesia is trying to stabilize financial markets as “unprecedented fears” over the spreading coronavirus trigger outflows, Governor Perry Warjiyo said.

“So far what we have felt, and also other central banks are also feeling, is the impact of the coronavirus through the financial markets,” Warjiyo told Bloomberg TV’s Tom Mackenzie on Thursday at a Bank Indonesia conference in Bali. “We are seeing reversals,” he said, including from equities and bonds.

Warjiyo said authorities are working to minimize the spread of the virus in Indonesia, including its main tourist spot of Bali. The effect on the real economy is so far limited, he said.

“We are managing the stability of the exchange rate, stability of the government bonds,” he said. “We have not seen a significant impact on the real sector.”

Fears over the coronavirus saw foreign investors turning net sellers of almost $564 million of Indonesian government bonds in three days through Wednesday. The local currency has also come under pressure this week, trimming gains this year to 1.5%.

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The outbreak of the virus, which has spread to locations around the world from its epicenter in Wuhan, China, has prompted governments to step up efforts to mitigate its impact. Rules around international travel have been tightened while flights have been suspended.

Challenging Environment

After a volatile 2019, Warjiyo said the global environment remains “challenging,” especially for emerging markets such as Indonesia. He called for greater coordination between monetary and fiscal authorities to support growth, saying “central bank cannot be the only game in town.”

Bank Indonesia cut interest rates by 100 basis points last year, while the government is widening its fiscal deficit to support Southeast Asia’s biggest economy. Warjiyo reiterated the central bank’s forecast of growth of about 5.3% for this year.

Monetary policy remains “accommodative,” though the central bank has a range of instruments it can use, not only interest rates, to achieve its goals, he said.

“Depending on those aspects, we may use the interest rate but not necessarily,” he said. “We may use our reserve requirement or we may inject liquidity.”

(Updates data on fund outflow from bonds in fifth paragraph.)

–With assistance from Tassia Sipahutar and Rieka Rahadiana.

To contact the reporter on this story: Karlis Salna in Jakarta at ksalna@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Michael S. Arnold, Thomas Kutty Abraham