Considering not only the Indonesian rupiah but also most other currencies are depreciating against the greenback, we can indeed assume that external factors are the reason behind the weakening rupiah.

The US dollar strengthened to a near two-week high on Monday (23/04) on the back of a rise in the 10-year US treasury yield to four-year highs. This rise - to 3 percent - is caused by concerns over higher inflationary pressures in the USA (after markets saw a rally in oil and metals prices over the past week), worries about increases in US debt issuance, and signs of easing (trade-related) tensions between the USA and China.

Rising US inflation would mean that the US Federal Reserve may decide to speed up the pace of interest rate hikes in 2018, perhaps exceeding markets' initial expectation of three rate hikes this year. This causes investors (particularly foreign investors) to withdraw funds from emerging market assets, including Indonesian assets. The next Federal Reserve policy meeting is scheduled for 1-2 May 2018. We expect to see a volatile performance of the rupiah, with the possibility of the currency weakening beyond the IDR 14,000 per US dollar level, ahead of this meeting.

Other factors that put pressure on the rupiah are the traditional dividend payout season in the April-May period as well as foreign debt repayments conducted by local companies in April. This all gives rise to a boost in US dollar demand, hence a weaker rupiah.

Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.65 percent to IDR 13,894 per US dollar on Monday (23/04). This rate is expected to weaken further on Tuesday.

Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia