JAKARTA. State lender Bank Rakyat Indonesia (BRI) deputy president director, Sunarso, said on Wednesday that the bank was waiting for Bank Indonesia’s (BI) response to China’s policy of devaluing the yuan.
“The short-term effect of the yuan devaluation is that the rupiah will continuously weaken. We must anticipate what measures BI will take. We do hope that it will respond to the devaluation with interventions,” said Sunarso as quoted by Antara in a press conference in Jakarta on Wednesday.
He added that if BI wanted to take other measures, such as increasing its benchmark interest rate (BI rate), which would hopefully lead to the strengthening of the rupiah, it would be positive as well.
“In a worst case scenario, BI might carry out several interventions and increase the BI rate but the rupiah still continues to weaken. This will impact bank portfolios, including by declining the quality of their credits. This must be anticipated,” said Sunarso.
He said China’s decision to devalue its yuan, which it has just done for the second day running, was a response to global economic growth. In the current context, however, the policy was related more to the country’s focus on increasing its own economic growth.
“Devaluation means China wants to make prices of their goods much cheaper. Currently, they are shifting their focus from domestic consumption to exports as a driver of its economic growth,” said Sunarso.
As well as the short-term effect of depreciating the rupiah, he said that in the long term, the yuan devaluation would affect domestic commodities which were similar to those manufactured in China.
“In our market, our products must compete with Chinese products, the prices of which have now been made much lower. In anticipation, today, we are carrying out a stress test, to see how strong the rupiah exchange rate is,” said Sunarso.
“With the current rupiah exchange rate, BRI’s credit portfolio is still safe although we need to make an extraordinary effort. This has been supported by the Financial Services Authority, which has relaxed its policies, including those relating to bank restructuring,” he said.
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