Bank Indonesia announced tighter foreign-exchange rules on Tuesday, May 5, 2024, to support the rupiah after the currency reached a series of record lows [1], [2].
These measures aim to curb speculative demand for the U.S. dollar. By restricting the amount of currency individuals can buy without documentation, the central bank seeks to reduce volatility caused by domestic and global economic uncertainty [1], [3], [4].
The new regulations focus on lowering the cash-purchase limit for dollars for buyers who do not provide supporting documents. While reports on the exact figure vary, some sources said the limit was cut to $25,000 per buyer per month from a previous limit of $50,000 [5]. Other reports said the new limit is $50,000, down from $100,000 [2].
In addition to the cash limits, Bank Indonesia raised the thresholds for forwards and swaps [1], [3]. These tools are typically used by investors and businesses to hedge against currency fluctuations, and the higher thresholds are intended to tighten the overall flow of foreign exchange [1].
Governor Perry Warjiyo said the bank would make big interventions to stabilize the rupiah [6]. This latest move follows a previous tightening of foreign-exchange rules implemented in April 2024 [2].
The rupiah has faced significant pressure as investors react to shifting global monetary policies and domestic economic indicators. The central bank's strategy relies on a combination of direct market intervention, and regulatory restrictions to prevent a further slide in the currency's value [1], [4].
“Bank Indonesia announced tighter foreign-exchange rules... to support the rupiah after the currency reached a series of record lows.”
The repeated tightening of currency controls within a single month suggests that Bank Indonesia is struggling to stabilize the rupiah through traditional interest rate adjustments alone. By implementing administrative barriers to dollar acquisition, the central bank is attempting to forcibly reduce the demand for foreign currency to prevent a devaluation spiral that could increase the cost of imports and fuel inflation.
