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Surge in coronavirus infections slows rupiah rise
The rupiah has appreciated by 4 percent in the last three months, shaving off some of its losses so far this year to only 1.86 percent.
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Illustration of the rupiah during the coronavirus pandemic. (JP/Mecca Yumna NP)
T
he rupiah exchange rate is likely to continue its appreciation trend, but experts say a surge in coronavirus cases and a delay in economic recovery could lead to a significant sell-off in Indonesian assets and hurt the currency.
Fitch Solutions expects the rupiah to remain stable over the next three to six months driven by the potential availability of coronavirus vaccines, continued management by Bank Indonesia, as well as anchored real yields because of low inflation.
“Even though it is likely the rolling out of the COVID-19 vaccine in Indonesia will take some time, […] we believe the rupiah will nevertheless be supported by the generally improved sentiment that the vaccine is likely to bring globally,” analysts at Fitch Solutions wrote in a note made available to The Jakarta Post on Friday.
“The second factor that will help retain rupiah stability is BI’s continued management of the currency,” they went on to say, adding that the stability of Indonesian real yields because of weak domestic inflation would further support the currency.
The rupiah exchange rate slightly appreciated by 0.11 percent to Rp 14,085 against the United States dollar during Friday's session closing. The currency has appreciated by 4 percent in the last three months, shaving off some of its losses so far this year to only 1.86 percent. It depreciated by around 18 percent at one point during the early days of the coronavirus outbreak in the country as foreign investors dumped risky assets.
Read also: BI vows to keep rate low in 2021 to support recovery
Over the long run, Fitch Solutions projects the country’s currency will continue to strengthen to the average of Rp 13,500 per US dollar in 2022 driven by the normalization of the global economy and the fact that the rupiah remains undervalued. “We believe that over the long-term, the rupiah will be less vulnerable to rapid sell-offs in local currency.”
