Another good news

It's an extension of my previous post regarding the Indonesia government strategy of handling some turbulences happen in world market, especially about weakening dollar and rising oil price.

I was wrong, but I'm quite happy because of that. previously, i worried about holding the foreign currency reserve in dollar because of trend that dollar tend to have higher probability to enter recession situation. Holding too much reserve in dollar will make us fall together with US if recession takes place.

But that is not the case. This morning I read news about government decision to lower local currency (rupiah) interest rates 25 basis point,0.25 %, from 8.25% into 8%.

Before we discuss about this further, I've provided one blog describes what factors affect central bank decision in raising or lowering interest rate.

in conclusion, one thing to describe almost all possible things is, Indonesia government gave signal that they are believe the economic growth in the future will be better. Negative effect of this decision is possibility in short term investor will take their fund abroad, make rupiah value lower than before, but taking decision of lowering interest rate should be also together with responsible to handle this kind of situation and I believe it is the case, Indonesia has higher reserve than before 1997, the year asian economic recession happened.

Another good news, the point which prove I was wrong, I though lower dollar and higher oil price will make reserve lower, but it works in contrary, it gains 800 million dollar for a month in government reserve because of those two situations. I believe the answer is a lot of reserve in Euro since the deputy governor of central Bank said: "decreasing value of dollar with respect to Euro make the foreign reserve value higher". moreover, Euro proportion must be higher than dollar since unfavorable movement in dollar make the reserve value higher. She also said :"Higher oil price give more income from Oil sector which directly add to reserve".

So far the central bank strategy has succeeded in hedging, prevention against unfavorable event, hopefully it will works in the future.