The Indonesian rupiah exchange rate depreciated 0.09 percent to IDR 12,164 per US dollar on Tuesday (25/11) according to the Bloomberg Dollar Index. The performance is caused by local companies’ month-end US dollar demand as well as US dollar buying by Indonesia’s central bank. Although unconfirmed, it is speculated that the central bank is boosting its foreign exchange reserves ahead of a looming external shock triggered by higher US interest rates in the second or third quarter of 2015.
At end-October 2014, the foreign exchange reserves held by Bank Indonesia totalled USD $112 billion, enough to cover 6.6 months of imports or 6.4 months of imports and servicing of government external debt repayment. Although this is well above international standards of reserves adequacy (at three months of imports), this level is still considerably below the reserves adequacy in several regional peers (8.8 months of import in Malaysia, and 10.8 months in the Philippines) and thus makes Indonesia more vulnerable to sudden capital outflows when the Federal Reserve decides to raise interest rates. Despite the fact that USD $1.2 billion entered Indonesia’s stock and local-currency bond markets after the recent subsidized fuel price hike, the rupiah has depreciated 0.6 percent in November. This fuels speculation that Bank Indonesia is active on the market. Another explanation can be that the central bank prefers the current rupiah level as it boosts the country’s exports. This then supports an improvement of the wide current account deficit.
Having depreciated slightly today, the rupiah’s performance was not in line with the performance of other Asian currencies. Most emerging Asian currencies appreciated on Tuesday on the back of an appreciating Japanese yen and Chinese yuan.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.36 percent to IDR 12,166 per US dollar on Tuesday (25/11).| Source: Bank Indonesia
Meanwhile, Indonesian stocks declined. The benchmark Jakarta Composite Index fell 0.44 percent to 5,118.94 points as investors probably engaged in profit taking before the official November inflation release. Inflation is expected to accelerate after the recent subsidized fuel price hike. There is also concern that the US Dow Jones Index will experience a correction after reaching record high levels.