Indonesia readies a bond fund to steady the falling rupiah

As the rupiah weakened, Indonesia's government said it would switch on a special tool to defend it: a Bond Stabilization Fund. As Nikkei Asia reports, Finance Minister Purbaya Yudhi Sadewa announced during a meeting of the country's financial-stability committee that the fund would be activated the following week.

The idea is to slow the flow of money leaving the country. When foreign investors sell Indonesian bonds and pull their money out, they push the rupiah down. A stabilization fund can step in to buy bonds and calm the market, easing that pressure. The government hoped the move would signal it was ready to act before the slide got worse.

Not everyone was convinced. Market watchers quoted in the report doubted the fund could really stop the outflows, given how strong the pressure had become as global oil prices rose and investors grew nervous about Indonesia. The announcement was the first of several steps the government and central bank would take that month to try to steady the currency, a sign of how serious the strain had grown.

Why it matters

Efforts to steady the rupiah matter to you because a weaker currency raises the price of imported fuel, food, and medicine. Whether tools like this fund actually work decides how much that pressure reaches everyday prices. Watch whether the fund slows the outflows, or whether the rupiah keeps falling despite it.