T

he rupiah continued its downward spiral on Thursday, when it traded at around Rp 13,759 to Rp 13,816 per US dollar, its worst performance in the last two years.

The rupiah continued to show its heightened volatility against the greenback despite a decision by Bank Indonesia (BI) to intervene in the market. The central bank reported on Wednesday that its foreign currency reserve fell by 2.97 percent to US$128.06 billion at the end of February from $131.98 billion in January.

Since the beginning of the year, the rupiah has depreciated by 1.47 percent against the US dollar, while other currencies were performing relatively well during the same period.

The Japanese yen had appreciated by 6.11 percent, the Korean won by 2.11 percent, the Singaporean dollar by 2.60 percent and the Thai baht by 3.95 percent.

The rupiah tumbled 1.6 percent in February, the worst performer in Asia and third-worst among 24 emerging market currencies worldwide.

The rupiah has been under pressure since February, as inflation in the United States began to rise while bonds were expected to be oversupplied as the US Congress approved a bill for the government to raise more debt.

At the beginning of March, newly elected Federal Reserve governor Jerome Powell signaled four rate hikes this year compared to the three planned by his predecessor, Janet Yellen.

The pressure piled on the rupiah last week when US President Donald Trump announced plans to impose a 25 and 10 percent import tariff on steel and aluminum, respectively. The European Union and China vowed to counter these measures by imposing import tariffs on US goods.

University of Indonesia economics professor Ari Kuncoro said the market had expected conditions in the US to ease off, but the resignation of Trump’s economic adviser, Gary Cohn, on Wednesday only added to the uncertainty. “It means that Trump is unstoppable and if Cohn’s resignation is followed by the resignation of other advisers, then who can control the president?”

The Jakarta Composite Index dropped by 2.03 percent to 6,368.27 on Wednesday and rose back up by 1.17 percent to 6,443.02 on Thursday.

Finance Minister Sri Mulyani Indrawati said Indonesia’s fundamental economy was in a better shape to deal with global uncertainty.

Some parameters had shown that its macroeconomic condition was currently much better than in 2017, the minister added.

Sri Mulyani pointed out that as of February, tax revenue had grown 14.04 percent to Rp 153.5 trillion ($10.75 billion), compared to Rp 134.6 trillion in the same period last year.

“Our current account balance is currently negative 1.7 percent, still lower than the 4 percent during the taper tantrum,” she said, referring to 2013 when former US Fed chairman Ben Bernanke hinted at reducing the Fed’s bond-buying program.

She said the focus of the government was to keep inflation as low as possible so that the interest rate could ward off pressure from the global market.

The chairman of the Indonesia Deposit Insurance Corporation, Halim Alamsyah, said the pressure on the rupiah would not weaken the ability of companies to pay taxes, dividends or interest given that most abided by BI’s rule to hedge their foreign debt.

Ari said the central bank only had market intervention as a tool to stabilize the rupiah given that other options like raising the interest rate would only hurt the economy.

He added that market intervention would not last long, however, because in the long run, the government needed to come up with a strategy to boost exports.

“In the event of a trade war, we must resort to diplomacy. We have to work with the EU, China and India to challenge the US plan,” Ari said.