Emerging Market Currency News: Continued Decline of Indonesia's Rupiah

| Source: Bank Indonesia

Market participants are waiting for results of the Federal Reserve's FOMC meeting, which is currently being conducted (17-18 December 2013). But before the release of any results, the US dollar is appreciating against most emerging currencies, including the rupiah, as the former is investors' safe haven in uncertain and volatile times. Moreover, US dollar demand is currently still high in Indonesia as local companies need dollar supplies for end-of-the-year debt settlements. Lastly, the ban on the export of unprocessed minerals, which will take effect on 12 January 2014, is expected to burden the country's current account deficit on the short term as it will cost more than USD $5 billion in exports per year. After 2016, the ban is expected to provide a positive contribution to the country's trade balance as value-added exports will start to bear fruit. This current account deficit is one of the big issues for the rupiah exchange rate at the moment and has caused concern among investors in recent times. Since the fourth quarter in 2011, Indonesia has to cope with this deficit. However, an improvement is visible. The deficit eased from USD $9.8 billion in the second quarter in 2013 (equivalent to 4.4 percent of Indonesia's GDP) to USD $3.4 billion (or 3.8 percent of GDP) in the third quarter due to new fiscal policies, less oil imports and the weaker rupiah which curbs imports but makes exports more attractive.

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