T

he rupiah fell to its lowest level since December 2008, but the World Bank deems the currency relatively stable compared to other major currencies-in-decline and the central bank says that weakness is necessary to tackle weak exports.

According to prices from local banks compiled by Bloomberg, the rupiah touched Rp 12,376 on Monday before closing at 12,349, down 0.4 percent from the day before.

Weak data from the world'€™s second- and third-largest economies dragged down sentiment during the day, as China'€™s 6.7 percent import decline in November indicated stalling economic activity while Japan'€™s recession deepened, with the latest third-quarter data showing a 1.9 percent drop in the economy.

Both countries are major trading partners for Indonesia and the recent data may indicate a further weakening of demand for Indonesian exports.

'€œThe world economy is weak, demand for our exported [products] has been low and one of the ways to maintain competitiveness is to not let our exchange rate strengthen,'€ BI director for monetary policy Doddy Zulverdi said.

In theory, a weak currency makes a country'€™s exports more affordable in overseas markets, but a recent finding from Bank Mandiri'€™s economic research team showed that for every 1 percent depreciation in the value of the rupiah there was a 0.3 percent decrease in exports, as most raw materials for exported products are imported.

Weak exports not only hurt Indonesia'€™s trade balance, which recorded a cumulative deficit of US$1.6 billion from January to October this year, but also worsened the current-account deficit (CAD), prompting foreign investors to sell-off Indonesian assets.

The condition has been exacerbated by a broad-based US dollar strengthening and expectations of a possible interest-rate hike next year that had investors divesting from emerging markets in favor of safer US assets.

Last year, the rupiah was listed as one of US-based Morgan Stanley'€™s '€œFragile Five'€ currencies most vulnerable to outflows due to the country'€™s dependence on foreign funds to finance its CAD.

But the rupiah'€™s 6.1 percent weakening against the US dollar between the end of July and Dec. 2 is relatively minor when compared to other declining currencies, with the rupiah gaining 9.6 percent against the Japanese yen and 2.4 percent against the euro, according to a World Bank report published Monday.

'€œIndonesia'€™s real effective [trade-weighted] exchange rate has remained relatively stable, appreciating slightly, by 0.3 percent, over July-October and by a more substantial 4.2 percent over the whole of 2014 through October,'€ the World Bank wrote, citing data from the Bank for International Settlements (BIS).

Analysts have forecasted that pressures on the rupiah would remain in 2015, with some predicting a slight drop in volatility and others expecting the currency to touch Rp 13,000 per US dollar.

'€œThe subsidized fuel-reform policy will boost market confidence and reinvigorate the flow of funds into the domestic market. Going into the future, the current account position is expected to improve, which will make it more conducive to managing fluctuations in the value of the rupiah,'€ Bank Mandiri wrote in its latest report, predicting an average exchange rate of Rp 11,950 against the US dollar next year.