Indonesian Rupiah Exchange Rate Rebounds from Six-Year Low
Contrary to the previous trading day, most emerging Asian currencies strengthened against the US dollar on Tuesday (09/12) supported by the yen’s advance as falling oil prices dented risk appetite. Based on the Bloomberg Dollar Index, Indonesia’s rupiah appreciated 0.47 percent to IDR 12,331 per US dollar today. Despite local firms’ increased US dollar demand to settle debt before the year-end, market participants were happy to learn that Indonesia’s central bank is active in the foreign exchange market to guard the currency.
Yesterday, the rupiah touched a six-year low due to weak macroeconomic data from Japan and China as well as the World Bank’s downward revision of Indonesia’s economic growth in 2014 and 2015.
Indonesia's central bank said today that it is always present in the foreign exchange market to monitor and guard against rupiah volatility. However, it stated that it does not aim for a specific level for the currency. It is not expected that the central bank will use its foreign exchange reserves to support the rupiah too much as the global trend is that emerging market currencies are depreciating against the US dollar (which has been experiencing bullish momentum amid an improving US economy). Furthermore, a weaker rupiah helps to make the country’s exports more competitive.
Indonesian Finance Minister Bambang Brodjonegoro said that recent rupiah volatility has been caused mainly by external factors as market participants are concerned about the sluggish economies of China and Japan, while US interest rates are expected to be hiked soon as the world’s leading economy is showing signs of structural economic recovery. Brodjonegoro added that the government will study whether it needs to change its rupiah rate assumption as set in the Revised 2015 State Budget. In the budget, the average rupiah rate is set at IDR 11,900 per US dollar but this may be a too optimistic assumption.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.04 percent to IDR 12,347 per US dollar on Tuesday (09/12).| Source: Bank Indonesia
Meanwhile, the central bank of Indonesia (Bank Indonesia) will hold its next Board of Governors’ meeting on Thursday (11/12). It is assumed that the institution will not change interest rates. On 18 November, it last altered its benchmark interest rate (raising it by 25 basis points to 7.75 percent) in an attempt to combat accelerated inflation after the Indonesian government raised prices of subsidized fuels.
Today’s strengthening of the rupiah failed to push Indonesian stocks into the green zone. On Tuesday (09/12), the benchmark stock index of Indonesia (Jakarta Composite Index) fell 0.42 percent to 5,122.31 points.