Indonesia's central bank announced on Monday that the nation's foreign exchange reserves fell by $1.3 billion in May to $144.9 billion, marking the lowest level in nearly two years following market intervention by the monetary authority. This development has heightened market anxiety as pressure on the rupiah intensifies.

The Indonesian rupiah plummeted to a historic low of 18,170 per US dollar on Monday, weighed down by a confluence of investor concerns. These include President Prabowo Subianto's expansive spending plans, a swelling fuel subsidy budget in the wake of the Iran conflict, questions over the central bank's independence, and new policies regarding commodity exports.

Over the year to May, Indonesia's foreign exchange reserves have declined by $11.6 billion. Despite the government's sale of $3.5 billion in dollar and euro-denominated bonds last month, the rupiah has been setting new record lows almost daily since late March. The central bank has ramped up its foreign exchange market interventions in defense of the currency.

The central bank stated that the level of reserves at the end of May is sufficient to cover approximately 5.6 months of imports, which is above the three-month international benchmark. It described the reserves as "adequate to support external resilience and maintain macroeconomic and financial system stability."

However, some market participants have pointed out that a significant portion of the $144.9 billion reserve figure consists of commercial bank deposits held at the central bank. Consequently, the net foreign exchange reserves are at a worryingly low level.

Two market observers closely monitoring the situation indicated that a large share of the central bank's foreign exchange reserves comprises dollars that banks have placed in its monetary operation instruments, such as foreign currency term deposits and US dollar-denominated central bank bonds.

They estimate that such deposits amount to between $30 billion and $50 billion. The sources requested anonymity to avoid potential repercussions from their comments.

A spokesperson for Indonesia's central bank, Ramdan Denny Prakoso, did not respond to a request for comment.

One of the sources noted that the central bank can still utilize the full gross amount of its reserves for foreign exchange market intervention. However, when these instruments mature, the bank must repay the commercial banks, creating a rollover risk.

"The risk is higher if there is no more capital inflow, or if the trade balance deteriorates," the source stated.