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Rupiah on the slide since Fed meeting
Indonesia’s currency has been on a downward trend since June 14, a day before the latest Federal Open Market Meeting (FOMC).
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T
he rupiah has depreciated against the United States dollar since the Federal Reserve’s latest meeting, in which US monetary policymakers hinted at two interest rate hikes by the end of 2023.
Bank Indonesia (BI) quoted the Jakarta Interbank Spot Dollar Rate (JISDOR) at Rp 14,453 on Monday, down 0.35 percent from a day earlier and continuing a weakening trend that started shortly before the Federal Open Market Meeting (FOMC) held on June 15 and 16.
The rupiah’s depreciation was largely driven by the Fed’s meeting, said Josua Pardede, chief economist at publicly listed Bank Permata.
“Given that it is not driven by [weak] fundamentals, it should not be permanent,” Josua told The Jakarta Post in a phone interview on Monday. “Although there has been talk about tapering off [in the Fed’s bond-buying program], which we expect to take place next year, at least the market has anticipated it.”
The Indonesian currency joins other emerging market currencies, such as the Indian rupee and Turkish lira, which have also weakened against the greenback. On Monday late afternoon, the rupiah, rupee and lira were down 0.37 percent, 0.35 percent and 0.34 percent, respectively, Bloomberg data showed.
The rupiah’s exchange rate against the US dollar was estimated to hover between Rp 14,345 and Rp 14,395 on Monday, said Andry Asmoro, chief economist at publicly listed state-owned Bank Mandiri.
BI has maintained its seven-day reverse repo rate (7DRR) at a record-low of 3.5 percent, arguing that that stance was consistent with forecasts for low inflation and with efforts to support exchange rate stability and the economic recovery.
Read also: BI holds benchmark rate as Fed remains dovish
The country’s currency is backed by high foreign exchange reserves worth $136.4 billion as of May, equivalent to 9.5 months of import financing — three times higher than the three months generally recommended as a safe minimum. For this year, the World Bank has estimated the foreign exchange reserves to be worth 7.9 months of imports, down from nine months last year.
Indonesia’s current account deficit was also expected to stay small this year at between 1 and 2 percent of gross domestic product (GDP), according to the central bank. It was just 0.36 percent of GDP in the first quarter.
David Sumual, chief economist at publicly listed Bank Central Asia (BCA), said the current exchange rate, hovering around Rp 14,400 per US dollar, had not deviated from its fundamental level between Rp 14,300 and Rp 14,500 a dollar.
“This is just a temporary reaction,” David told the Post in a phone interview on Monday. “Going forward, it will go back to its fundamental level.”
