T

he weakening of the rupiah is estimated to persist into 2016, overshadowing next year'€™s growth target, a recent discussion by DBS Group Research has concluded.

According to DBS economist Gundy Cahyadi, the rupiah will still be under pressure as a result of significant strengthening of the US dollar. '€œThe strengthening of the US dollar is not merely driven by the Federal Reserve'€™s plan to jack up its key rate,'€ he said.

'€œIt is also caused by the stimulus packages rolled out by the central banks of Japan and the European Union. Their money printing activities have reduced the value of the yen and euro when compared to the US dollar.'€

The strengthening dollar eventually impacted other currencies, including the rupiah, he added.

Bloomberg data shows that the rupiah has so far depreciated by around 9 percent against the greenback throughout this year. It ended at 13,622 per US dollar on Wednesday from 13,623 a day before.

DBS predicts that this condition will continue, especially because expectation is building that the Bank of Japan (BoJ) and European Central Bank (ECB) will likely increase their stimulus programs.

Bloomberg reported that BoJ'€™s Governor Haruhiko Kuroda hinted that there was plenty of room to buy more Japanese government bonds, while ECB'€™s President Mario Draghi said that he would investigate all options for more stimulus in December.

'€œFor Indonesia, further currency weakening will impact domestic consumption and the investment climate as prices and expansion costs are expected to surge, and we know that consumption and investment hold a significant role in economic growth,'€ Gundy said.

According to the latest data from the Central Statistics Agency (BPS), household consumption still made up the largest part of gross domestic product (GDP), accounting for almost 60 percent of GDP in the second quarter, followed by investment with almost 25 percent.

However, their annual growth rates have eased when compared to the previous two quarters. Consumption grew at a rate of 2.66 percent in the second quarter, down from 2.75 percent in the first quarter of 2015 and the fourth quarter of last year.

Investment, on the other hand, posted a growth rate of 1.14 percent in the second quarter, falling from 1.38 percent in the first quarter and 1.44 percent in the fourth quarter.

DBS estimates that Indonesia'€™s economy will not skyrocket in 2016, despite the government'€™s latest efforts to spur growth. It sets the growth outlook within a range of 5 to 5.2 percent, slightly lower than the government'€™s own target of 5.3 percent.

Separately, Fitch Ratings wrote in its report that a lift-off in US interest rates, expected in December, would result in a number of '€œadverse effects'€ on emerging markets (EMs), including reduced capital inflows.

'€œThis [reduced inflow] will add to strains financing current account deficits or refinancing external debt and potentially lead to depreciation of EM exchange rates or a decline in foreign-exchange reserves, depending on exchange-rate regimes,'€ the report says.

The exchange rate depreciation, according to Fitch, will put further pressure on EM policy makers to raise domestic interest rates to meet inflation targets or to attract capital inflows.

In its country analysis, Fitch maintained a stable outlook on Indonesia, but said there was still the potential of capital outflows as foreign ownership of outstanding local-currency bonds was high at 38 percent.