The rupiah is assumed to trade at Rp 14,500 per US dollar on average in 2019, compared to the Rp 14,400 originally proposed by the government.

The slight change reflects lawmakers’ concern over drafting a realistic exchange rate level amid the ongoing rupiah depreciation, which has been driven by the United States Federal Reserve’s tightening policies and swelling of the current account deficit (CAD).

As of Tuesday, the rupiah traded at Rp 14,908 per dollar, according to data from the Jakarta Interbank Spot Dollar Rate (JISDOR), compared to the Rp 14,859 per dollar recorded a day earlier.

The Finance Ministry’s fiscal policy head, Suahasil Nazara, said the government was optimistic the rupiah would strengthen next year, as it had projected that pressures on the rupiah stemming from the CAD would ease in 2019.

“With the ongoing rupiah depreciation, import [growth] is projected to slow and therefore pressure [on the rupiah] from the CAD is also hoped to decline,” Suahasil told lawmakers in Jakarta on Tuesday.

The CAD swelled to US$8 billion in the second quarter this year from $5.7 billion in the first quarter. The latest figure is equal to 3 percent of GDP. A deficit in the current account has left the rupiah vulnerable to external shocks as it needs foreign capital inflow from foreign direct or portfolio investment to cover the deficit.

The government has introduced several measures intended to narrow the deficit, such as expanding the use of 20 percent blended biodiesel (B20) to non-public service obligation sectors, imposing higher import taxes on 1,147 consumer goods and halting several infrastructure projects with high imported content.

Such moves are hoped to be able to dial down import growth, which was recorded at 24.52 percent year-on-year (yoy) from January to August this year, according to Statistics Indonesia (BPS) data.

Suahasil added that the new exchange rate assumption was still well within the government’s acceptable range of Rp 14,500 to Rp 14,600 per dollar, adding that the ministry would further calculate the impact of the change in the rupiah exchange rate assumption on the overall budget posture.

Center of Reform on Economics (CORE) Indonesia research director Piter Abdullah said the revised rupiah exchange rate was more realistic considering the external pressures expected to bring down the rupiah’s value next year, which included fear of contagion from Turkey and Argentina’s currency crisis.

Pressures from the US Federal Reserve, meanwhile, were expected to be more subdued next year than in 2018, as the Fed was only expected to increase its policy rate three times next year compared to four times this year, said Piter.

He added that there was room for the rupiah to strengthen next year considering the measures taken by the government to reduce the CAD, and that a trade surplus early next year would prove the effectiveness of the government’s measures to cut the CAD.

“If [the government’s policies to cut the CAD] are proven to be effective [in early 2019], it would invite much-needed positive sentiment to boost the rupiah,” said Piter.

Aside from revising the exchange rate assumption, lawmakers and the government have also agreed to revise up the oil lifting assumption to 775,000 barrels oil per day (bopd) from 750,000 bopd previously proposed by the government.

The Energy and Mineral Resources Ministry’s oil and gas director general, Djoko Siswanto, was optimistic that the revised lifting assumption in 2019, which was equal to the outlook of oil lifting in 2018, would be achieved on account of an increase in output from the Banyu Urip oil field in East Java.

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