Rupiah Weakens Past Rp 18,000 Against US Dollar Amid Market Fears

Jakarta, Indonesia - The Indonesian rupiah has recently crossed the Rp 18,000 mark against the US dollar, closing at about Rp 18,027 on October 16, 2023, marking a 0.50% daily decline. This decline has made the rupiah the worst-performing currency in Asia for the week, after the Philippine peso and Vietnamese dong, as reported by CNBC Indonesia.

The depreciation of the rupiah is largely attributed to domestic market sentiments, particularly following the announcement from Morgan Stanley Capital International (MSCI) regarding a potential downgrade of Indonesia's stock market classification from Emerging Market to Standalone Market. This proposal has raised concerns among investors about the future of foreign capital inflow into Indonesia's financial markets, as highlighted by KONTAN.

“The market is reacting to global uncertainties, which has led to a continued outflow of funds from Indonesian portfolio assets.”Erwin Gunawan Hutapea, Head of Monetary Management Department, Bank Indonesia

Erwin Gunawan Hutapea, Head of the Monetary Management Department at Bank Indonesia (BI), noted that the recent weakness in the rupiah is also tied to a broader global risk-off sentiment, which has increased demand for the US dollar. He said the market is reacting to global uncertainties, which has led to a continued outflow of funds from Indonesian portfolio assets. BI has indicated that it will maintain its presence in the market to stabilize the rupiah, utilizing various intervention strategies, including Non-Deliverable Forward (NDF) transactions.

Economist Syafruddin Karimi from Andalas University warned that if the MSCI sentiment persists, and if the US dollar index and government bond yields remain high, the rupiah could further depreciate to between Rp 18,200 and Rp 18,500 per dollar.

“If the MSCI sentiment persists, the rupiah could further depreciate to between Rp 18,200 and Rp 18,500 per dollar.”Syafruddin Karimi, Economist, Andalas University

In response to the ongoing economic pressures, Bank Indonesia raised its benchmark interest rate by 25 basis points to 6% on October 19, 2023. This decision aims to stabilize the rupiah amidst rising global uncertainties and to mitigate the impact on inflation from imported goods, as reported by various sources including VOI Indonesia and Beritasatu.

“Cash is the king.”Perry Warjiyo, Governor, Bank Indonesia

Perry Warjiyo, Governor of Bank Indonesia, emphasized that the current global economic slowdown and heightened uncertainties are influencing capital outflows from emerging markets, including Indonesia. He remarked that cash is the king, indicating a shift in investor preference towards more stable financial markets. The rupiah's year-to-date depreciation stands at 1.03%, which is relatively better compared to other currencies in the region, according to Kompas.

As of late 2023, the external resilience of Indonesia remains supported by foreign exchange reserves amounting to $146.3 billion at the end of September 2023, which provides a buffer against further currency volatility.