Rupiah lowest against US dollar since 1998
SYDNEY: Indonesia’s rupiah weakened past 15,000 per dollar for the first time in 20 years as sentiment toward emerging-nation assets soured and oil prices jumped.
The currency has tumbled almost 10% this year as rising US interest rates have boosted the dollar and Indonesia’s current-account deficit has left the economy exposed to the financial turmoil that afflicted Turkey and Argentina.
Crude prices have almost tripled since
February 2016, ratcheting up the cost of imports.
“Given the rise in US interest rates, higher oil prices which may see a wider trade deficit, and a stronger dollar in recent days, it was proving difficult for Bank Indonesia to hold the line at 15,000,” said Khoon Goh, head of research at Australia and New Zealand Banking Group Ltd in Singapore.
“If sentiment doesn’t improve, we risk further weakness towards the 15,200 region.”
The rupiah has weakened even as Bank Indonesia has intervened “in a measured way” to limit its decline.
The central bank has also raised interest rates five times since May to shield the currency from the emerging-market rout.
The currency dropped to as low as 15,051 per dollar yesterday, the weakest since the Asian financial crisis in July 1998, before trading 0.9%t lower on the day at 15,045.
“Indonesia is now a net importer of oil, so the higher crude prices and weaker rupiah are fanning concern that inflation will quicken,” said Toru Nishihama, emerging-market economist at Dai-ichi Life Research Institute in Tokyo.
“With oil prices rising, the Fed normalising policy and Indonesia having fiscal and current-account deficits, negative speculation is harder to contain.”
The government is monitoring the rupiah and possible risks to banks, though for now the currency’s adjustment has been managed well by the sector, Finance Minister Sri Mulyani Indrawati told reporters yesterday. Authorities would continue to take steps to bolster the economy, she said.
“Bank Indonesia will certainly keep managing the exchange rate, so that we will be able to guard the economy and adjust to a new equilibrium level,” she said.
Indonesia’s bonds have also been under pressure.
The benchmark 10-year bond yield climbed 14 basis points yesterday to 8.15%, having increased from 6.32% at the end of 2017.
The nation’s key stock index slid 1.2%, taking this year’s decline to 7.6%.
In addition to raising borrowing costs, Bank Indonesia has announced the introduction of domestic non-deliverable forwards, which it says will provide an alternative for companies wanting to hedge dollar exposure and help reduce rupiah volatility.
Indonesia is also close to finalising incentives for exporters holding billions of dollars in banks to encourage them to convert the funds into rupiah, as the central bank steps up efforts to shield the local currency from a global emerging-market rout.