The central bank of Indonesia (Bank Indonesia) stated that, besides global volatility caused by uncertainty about the timing of higher US interest rates, the rupiah has been - and remains - under pressure due to Indonesia’s increasing private sector debt and the wide current account deficit. Moreover, as subsidiaries of multinational companies in Indonesia tend to send back dividends to the foreign parent companies in the second quarter (implying rising US dollar demand), the rupiah is plagued by additional pressures up to June.
Bank Indonesia Governor Agus Martowardojo said that the high amount of unhedged private sector debt entails depreciating pressures for the rupiah. According to the latest data from Bank Indonesia, Indonesia’s private sector foreign debt amounted to USD $162.9 billion (54.6 percent of the country’s total external debt). A significant portion of this unhedged private sector foreign debt is short-term debt and therefore implies risks in times of volatile currency performance.
Regarding the country’s current account deficit, the central bank expects that it will remain around 3 percent of Indonesia’s gross domestic product (GDP) this year.
Martowardojo added that compared to other currencies (including the currencies of Brazil, Turkey, India and South Africa), the rupiah has been performing relatively well against the US dollar, managing to limit its decline to 4 percent only in 2015. Other currencies have performed worse. Nonetheless, the Indonesian rupiah is still not too far from a 17-year low and therefore triggers concerns among investors and policymakers.
On Wednesday (25/03) the rupiah depreciated 0.56 percent to IDR 12,984 per US dollar based on the Bloomberg Dollar Index. Market players purchased US dollars on expectation that US inflation will grow in the medium-term. Being one of the key indicators for the Federal Reserve’s decision to increase its key interest rate, expectation of higher US inflation has a big impact on the market (another key indicator is US employment).
However, Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.30 percent to IDR 12,932 per US dollar on Wednesday (25/03).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia