These receipts were more than enough to make up for uses of foreign exchange for government external debt repayment and Bank Indonesia's maturing foreign exchange bills in August.

According to a statement released on Bank Indonesia's website, the current reserve asset position can adequately cover 8.9 months of imports or 8.6 months of imports and servicing of public external debt repayments, well above the international standards of reserve adequacy at three months of imports. Agusman, Executive Director at Bank Indonesia, added that the current foreign exchange reserve position of Indonesia is able to strengthen the resilience of the external sector and maintain the sustainability of Indonesian economic growth.

Indonesia's USD $128.8 billion worth of foreign exchange reserves in August 2017 is a new all time high and therefore forms ammunition for the domestic economy and improves confidence in the Indonesian economy amid uncertain times (stemming from rising geopolitical turmoil related to North Korea, uncertainty about monetary policies in the European Union and USA as well as disappointing Q2-2017 GDP growth at home).

Rising foreign exchange reserves mean that Bank Indonesia has more ammunition to defend the rupiah exchange rate in times of shocks. This would imply that Indonesia's central bank has more room to further cut its benchmark interest rate (especially now inflation and the current account deficit seem under control), thus allowing more room for credit growth and economic activity. Lower interest rates would then help to boost consumption that has remained bleak so far this year and is partly responsible for the disappointing 5.01 percent (y/y) GDP growth pace in the first half of 2017.

Foreign Exchange Reserves Indonesia:

 2010  2011  2012  2013  2014  2015  2016  2017
Foreign Exchange
 66.1  96.2 110.1 112.8  99.4 111.9 105.9 111.5 128.8²

¹ in billion USD dollar
² per end-August 2017
Source: Bank Indonesia

On Friday (08/09) Indonesia's rupiah appreciated 0.92 percent to IDR 13,185 per US dollar (based on the Bloomberg Dollar Index), the strongest level in ten months. This marked movement was mainly caused by US dollar weakness that occurred after the latest monetary policy decisions taken by the European Central Bank (ECB) on Thursday (07/09).

Read more: Indonesian Rupiah Appreciating Markedly on US Dollar Weakness

On the other hand, a too strong rupiah would be negative for Indonesian exports. Earlier, Bank Indonesia officials had already indicated that they would not allow too much rupiah appreciation in an effort to protect the competitiveness of the nation's exports. Although officials will not mention exact figures, we assume that Bank Indonesia would be comfortable with a rupiah that remains above IDR 12,800 per US dollar.

Meanwhile, Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.35 percent to IDR 13,284 per US dollar on Friday (08/09).

Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia