The Indonesian rupiah continues to be a cause for concern as the currency immediately depreciated heavily after trading opened on Monday (08/06). Based on the Bloomberg Dollar Index, the rupiah hit a new record-low of IDR 13,382 per US dollar in the post Asian Financial Crisis era at 9:10 am. Due to a lack of domestic and international positive sentiments only central bank intervention can support the country's ailing currency. Meanwhile, Indonesian stocks followed suit by declining 0.70 percent shortly after opening.
Late last week, the central bank of Indonesia (Bank Indonesia) announced that the country’s foreign exchange reserves declined to USD $110.77 billion at the end of May (from USD $110.87 billion in the preceding month), partly the result of central bank efforts to defend the rupiah in the foreign exchange market.
In line with global bond yields, Indonesian yields have risen accordingly placing additional pressure on the rupiah. Meanwhile, domestic US dollar demand is high due to dividend repatriation and debt repayment.
Other international factors that put pressure on the rupiah include looming higher US interest rates before the year-end (supported by May’s positive US payrolls that jumped the most in five months) and uncertainty surrounding the Greek debt crisis in the Eurozone. Both these matters reduce investor appetite for emerging market assets.
More generally, Indonesian stocks and the rupiah have been hurt by sluggish economic growth in Q1-2015 (Indonesia’s economy expanded at a pace of 4.71 percent y/y), partly caused by slow progress in government spending. Meanwhile, ahead of the Ramadan and Idul Fitri celebrations (which always trigger additional inflationary pressure), Indonesian inflation has accelerated to 7.15 percent (y/y) in May. As such, markets expect that Bank Indonesia will maintain its relatively high benchmark interest rate at 7.50 percent (limiting economic activity).
By 10:01 am local Jakarta time, the rupiah had depreciated 0.59 percent to IDR 13,368 per US dollar according to the Bloomberg Dollar Index. The benchmark Jakarta Composite Index had fallen 0.78 percent to 5,060.87 points by the same time. Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.54 percent to IDR 13,360 per US dollar on Monday (08/06).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia