The Indonesian rupiah exchange rate came close to the IDR 12,000 per US dollar mark on Wednesday (18/06). Based on the Bloomberg Dollar Index, Indonesia’s currency depreciated 0.87 percent to IDR 11,997 per US dollar. Bank Indonesia stated that the weakening is due to violence in northern Iraq (giving rise to a higher oil price which subsequently pressures the financial balance sheets of countries that import oil, such as Indonesia), and concern about results of the Federal Reserve meeting (17-18 June 2014).
Traditionally, the US dollar is the safe haven when the international oil prices rise. Moreover, as US economic data improve, market participants speculate that the Federal Reserve will continue to wind down its bond-buying program (quantitative easing) to USD $35 billion per month as well as raise interest rates which are currently close to zero. These factors cause weakening emerging currencies in Asia including the rupiah.
However, Bank Indonesia said that investors remain confident about the economic fundamentals of Indonesia, evidenced by capital inflows worth of IDR 138 trillion (USD $11.6 billion) up to mid-June. Therefore, it considers the recent depreciating trend of the rupiah as a temporary phenomenon only.
From the domestic side, the close race between Joko 'Jokowi' Widodo and Prabowo Subianto for Indonesia’s presidential seat causes political uncertainty.
It has also been reported that local importers have started to hoard US dollars in an attempt to meet future payments amid widespread concern that a surge in oil prices will impact negatively on the trade balance of Indonesia.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.96 percent to IDR 11,978 against the US dollar on Wednesday (18/06).