Indonesian Rupiah Exchange Rate Down on Current Account Troubles
Due to a lack of positive domestic and external sentiments, the Indonesian rupiah exchange rate has depreciated to a six-week low against the US dollar. Based on the Bloomberg Dollar Index, Indonesia's currency declined 0.66 percent to IDR 11,521 per US dollar by 16:22 local Jakarta time. In fact, several negative domestic sentiments are the reason behind the current depreciation. Firstly, revived concerns about Indonesia's current account deficit and, secondly, concerns about capital outflows due to dividend payments.
Governor of Indonesia's central bank (Bank Indonesia) Agus Martowardojo revealed that the country's current account deficit, which had reached a record high in 2013 but showed an easing trend ever since, may have exceeded the two percent of gross domestic product mark in the first quarter of 2014. This deficit had eased to 1.98 percent of GDP in the fourth quarter of 2013. Moreover, a possible widening current account deficit can be exacerbated by dividend repatriation as domestic companies pay out dividends to foreign shareholders.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.48 percent to IDR 11,486 per US dollar on Tuesday (22/04).
The rupiah's performance is in line with the majority of other emerging Asian currencies. Since last week, these currencies have been weakening against the US dollar due to increased concerns about the geopolitical tensions in Ukraine. Such concerns always result in market participants' hunger for safe havens such as the US dollar.
Indonesia also still faces ongoing political uncertainty after the 2014 legislative election (held on 9 April 2014) which resulted in a fragmented outcome. In the following weeks, coalitions will need to be made and various names of possible presidential candidates as well as vice-presidential candidates will be mentioned. This is expected to lead to volatile movements within Indonesia's money markets as the market reacts to the latest developments. The presidential election of Indonesia is scheduled for 9 July 2014.
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