Concern over Ailing Rupiah Intensifies; Government Prepares Package
Concerns about Indonesia's weakening rupiah intensified on Wednesday (21/08) as the currency is now balancing on the psychological boundary of IDR 11,000 per US dollar. The rupiah continued its downward spiral today although its decline was limited due to the intervention of Indonesia's central bank (Bank Indonesia) that started selling US dollars again in an effort to support the rupiah. According to data compiled by Reuters, the rupiah has now fallen 10.7 percent this year.
Global worries about the ending of the Federal Reserve's quantitative easing program next month has triggered significant outflows from emerging economies, including Indonesia. Most emerging market currencies have been losing ground against the US dollar recently as money flows back to the United States. However, some countries have been hit harder due to the presence of internal problems. India, Brazil and Indonesia are probably the best examples of countries that are hit hardest as sharply depreciating currencies occur not only because of the looming end to the Fed's bond-buying program but also due to structural internal problems. For Indonesia these problems include a widening current account deficit, high inflation, and cooling economic growth.
Government bond yields rose to the highest level since March 2011 as investors continued to reduce their position in these assets. The five-year government bond yield rose to 7.800 percent, while the 10-year bond yield climbed to 8.563 percent.
On Friday (23/08), the government is scheduled to announce a policy package - aimed at curtailing inflation and averting an increase in unemployment.
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