Rupiah falls to lowest level since 1998 Asian crisis

JAKARTA: Rupiah slid to a twodecade low, spurring intervention from the central bank as the meltdown in Argentina and Turkey raises scrutiny on emerging markets with current account deficits.

The rupiah fell to 14,750 per US dollar, the weakest level since the 1998 Asian financial crisis, while the benchmark bond yields advanced 10 basis points to the highest level since 2016. The Jakarta Composite Index slipped as much as 1.3 per cent.

“The rupiah’s underperformance relative to the rest of emerging markets stems from Indonesia’s weak external payments position, especially the current account deficit,” said Prakash Sakpal, an economist at ING Groep NV.

Still, “things now are far different than 20 years ago when the crisis originated in Asia and rupiah’s external creditworthiness was much weaker”, he added.

As investors dumped Turkish and Argentinian assets, countries with large current-account deficits such as Indonesia and India have also seen their currencies and bonds come under selling pressure.

The rout in the Argentinian peso and Turkish lira end the stability brought by Bank Indonesia’s four rate hikes since mid-May, which has led to a return of foreign funds into its debt market.

The recent sell-off would put more pressure on the central bank to raise rates again, said Bank of America Merrill Lynch.

“Just goes to show the external environment remains tough for Indonesia as we had anticipated,” said Mohamed Faiz Nagutha, an economist at Bank of America Merrill Lynch in Singapore.

“We continue to expect more hikes for sure, with the exact magnitude to be determined by external rather than domestic fundamentals.”

The central bank was intervening in the foreign exchange and bond markets, said Nanang Hendarsah, executive director for monetary management.

The rupiah is down 7.8 per cent this year, and first came under pressure from a resurgent greenback and climbing US Treasury yields. The escalating trade war between the United States and China, followed by the Turkey turmoil then added to its woes.

It’s the second-worst performing major Asian currency this year, after the Indian rupee.