TheJakartaPost
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How Islamic finance can manage rupiah stability
An ecosystem that enables Islamic finance to flourish needs to be established.
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A money changer employee serves a customer at the ITC Kuningan shopping center. (Antara/Puspa Perwitasari)
I
n the last few weeks, we have witnessed an increase in foreign currency volatility in emerging markets, including Indonesia. The rupiah dropped to a new low of 14,418 against the US dollar on July 3, according to the Jakarta Interbank Spot Dollar Rate (JISDOR).
According to Bloomberg, since April 2018, there has been capital outflow from the Indonesian bond market amounting to almost US$1.9 billion.
The United States Federal Reserve’s move to hike interest rates several times this year created a narrower yield spread between Indonesian bonds and US bonds, resulting in pressure against the rupiah that has further intensified with the escalation of trade tensions between the US and China.
In light of these conditions, the flight-to-quality phenomenon may, to some extent, be considered a major driving factor in the creation of instability for the rupiah over the years.
