Jakarta Post

Please Update your browser

Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.

Jakarta Post
The Jakarta Post
Video Weather icon 26°C
DKI Jakarta, Indonesia
26°C Light Rain

Rain until tomorrow morning, starting again tomorrow afternoon.

  • Thu

    26℃ - 31℃

  • Fri

    26℃ - 32℃

  • Sat

    27℃ - 32℃

  • Sun

    26℃ - 30℃

Rupiah heading to new fair value

  • Satria Sambijantoro and Tassia Sipahutar

    The Jakarta Post

Jakarta | Wed, July 17, 2013 | 09:38 am
Rupiah heading to new fair value

The rupiah is expected to weaken further after Bank Indonesia (BI) gave room for the currency to find its new equilibrium, a situation that will support the central bank'€™s foreign exchange (forex) reserves, though it may have the trade-off of driving up import costs and harming local companies.

On Tuesday, the rupiah continued to trade within the five-digit zone, tumbling 0.1 percent to touch 10,036 per US dollar.

BI, which adopts a loose exchange rate principle, has been in the spotlight for intervening too much for too long in order to maintain the rupiah below the 10,000 per dollar psychological threshold when the region faced huge capital outflow.

'€œWe eased our control in the context of letting the market mechanism work in the local foreign exchange market,'€ BI spokesman Difi Johansyah said on Tuesday. '€œWe cannot go against the tide because the potential of capital outflow is still there due to the possible wind up of quantitative easing.'€

With BI now relaxing its too-tight grip on the rupiah, it was just a matter of time before the rupiah depreciated in line with other Asian currencies and stabilized its new equilibrium level, analysts have said.

'€œBenchmarking against some of the other Asian currencies, investors will probably find Indonesian markets a more acceptable risk with the rupiah closer to 10,500 [per dollar],'€ said Hak Bin Chua, the chief ASEAN economist with Bank of America Merrill Lynch.

Allowing the rupiah to move closer to its market-determined value '€” which does not have to depend on heavy central bank intervention from its forex reserves '€” will assure investors that the rupiah is at a more sustainable and stable level, according to Chua.

A study from BI shows that the rupiah'€™s volatility has more implications for imports rather than exports. Thus, a weak rupiah is disadvantageous for Indonesia, as it might burden the economy more from the import channel, rather than making exported goods cheaper and improving the country'€™s trade competitiveness.

PT Astra International, the second-largest company by market capitalization in the Jakarta bourse, said that it had increased its automobile price range by between 1 and 2 percent in July, in response to the depreciation trend of the rupiah throughout 2013.

'€œEvery manufacturing business has links to the US dollar, including us. Even though some of our products are high in local content, they still have parts that are imported, such as plastic and aluminum,'€ Astra investor relations head, Tira Ardianti, said.

Major pharmaceutical company PT Kalbe Farma acknowledged that the rupiah might have an impact on its financial performance in the fourth quarter of 2013, citing that around 90 to 95 percent of its raw materials are imported from overseas.

'€œFor every 10 percent depreciation in the rupiah, we will see a rise in costs by about 3.5 percent,'€ Kalbe finance director and corporate secretary Vidjongtius said on Tuesday.

Indonesia Employers Association (Apindo) deputy chairman Anton Supit raised concerns on the weakening of rupiah that was beyond the level tolerated by business players.

Anton, who had previously urged BI to maintain the rupiah at its '€œconducive'€ level for businessmen of around 9,500 per dollar, said it is necessary for the central bank to minimize volatility swing on the rupiah.

'€œWhat business really needs is the rupiah'€™s stability, and while the key to that is the resilience of our economy, the government should also consider short-term measures to intervene with the condition,'€ he said.

Linda Yulisman also contributed to this story.