Indonesian Currency Update: Rupiah Weaker ahead of Federal Reserve Meeting
Ahead of the Federal Open Market Committee (FOMC) meeting, the two-day policy meeting which starts today (16/09), the US dollar continues to appreciate against most currencies, including the Indonesian rupiah, as investors remain cautious ahead of a possible US interest rate hike. By 09:36 am local Jakarta time, the rupiah had depreciated 0.29 percent to IDR 14,450 per US dollar according to the Bloomberg Dollar Index, a fresh 17-year low.
Bank Indonesia Governor Agus Martowardojo hopes to see a small US interest rate hike this month as current ongoing uncertainty may do more damage than an actual interest rate hike would do. Earlier, Indonesian Finance Minister Bambang Brodjonegoro also advised the US central bank not to hesitate to hike US interest rates as a large chunk of current turmoil (severe global volatility) is caused by the persistence of uncertainty.
Martowardojo added that he sees the rupiah trading in the range of IDR 13,400 to IDR 13,900 per US dollar in 2016, a level that includes uncertainty caused by global market volatility.
Analysts say that a Fed Fund Rate hike, which will most likely result in capital outflows from emerging markets as US rates become more attractive, could push the rupiah beyond the IDR 15,000 per US dollar level. However, this is expected to be of a temporary nature only as Indonesia’s economic fundamentals and economic potential for the future remain good.
While being on a state visit to Doha, Indonesian President Joko Widodo remarked that people should not be overly concerned about the rupiah as the currency’s current weakness is still manageable and is mostly caused by external factors such as the Federal Reserve’s looming monetary tightening, the recovering US economy, and China’s hard landing. Widodo added that the rupiah would not be as weak as it is today if Indonesia could reduce the amount of imports (such as consumer goods, electronics and certain commodities).
Meanwhile, Indonesian news portal Kompas reported that at least five companies in Bekasi (West Java) have gone bankrupt due to higher costs of imports (brought about by the weak rupiah), resulting in the layoff of nearly 2,000 people. These companies were active in the production of electronics, ceramics and car spare parts.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.49 percent to IDR 14,442 per US dollar on Wednesday (16/09). So far this year, the rupiah has weakened 16 percent against the greenback.