Indonesian Rupiah Exchange Rate's New Equilibrium at IDR 11,000?
Coordinating Minister for Economic Affairs Hatta Rajasa said that the rupiah exchange rate's new equilibrium is at IDR 11,000 per US dollar. As the economic fundamentals of Indonesia's economy have improved in recent months - evidenced by the easing current account deficit and inflation - the rupiah has shown a strong performance, appreciating around six percent against the US dollar in 2014 (year to date). In fact, Rajasa warned that the rupiah should not strengthen too much as this impacts negatively on Indonesia's trade balance.
In order for the rupiah to appreciate to the level of IDR 11,000 per US dollar (or further), it will be important that the new Indonesian government and president (the legislative election is scheduled for 9 April 2014 and the presidential election for 9 July 2014) are considered market friendly. Currently, the most popular person to become Indonesia's next president is Joko Widodo (Governor of Jakarta). Both the Indonesian people and the (foreign and domestic) business community seem to be content if Widodo is elected. However, it remains unknown whether Widodo will join the presidential race.
Another reason why the rupiah remains attractive is because Indonesia's central bank is expected to keep its benchmark interest rate (BI rate) at 7.50 percent for a while. The BI rate was raised gradually from 5.75 percent in June 2013 to 7.50 percent in November 2013 to combat high inflation (which had accelerated sharply after the government increased prices of subsidized fuels in June 2013) and to support the rupiah exchange rate (which depreciated over 21 percent against the US dollar in 2013).
On Tuesday's trading day (11/03), the Indonesian rupiah exchange rate depreciated 0.26 percent to IDR 11,400 per US dollar based on the Bloomberg Dollar Index, thus not following today's general trend of emerging Asian currencies edging higher versus the US dollar. Emerging currencies were supported by today's stabilizing of the Chinese yuan. Previously, the yuan lost significantly due to the country's weak export data in February 2014 (China's exports plunged 18.1 percent year-on-year).
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.57 percent on Tuesday (11/03) to IDR 11,384 per US dollar as it absorbed yesterday's strong performance.
| Source: Bank IndonesiaBahas
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