Rupiah Exchange Rate: Continued Depreciation amid Uncertainty
The Indonesia rupiah exchange rate continued its depreciation on Wednesday (04/12). The central bank's Jakarta Interbank Spot Dollar Rate fell 1.09 percent to IDR 11,960 per US dollar after absorbing the impact of the currency's weak performance on yesterday's spot market. On Tuesday (03/12), local Indonesian companies were buying US dollars at a more attractive exchange rate after the currency had appreciated previously, thus placing serious downward pressure on the currency of Southeast Asia's largest economy.
In the Bloomberg Dollar Index, the rupiah broke through the psychological IDR 12,000 level again today (04/12) as market participants are concerned ahead of the FOMC meeting on 17 and 18 December. Speculation has arisen that the Federal Reserve may start winding down its USD $85 billion quantitative easing program this month. As of 03:02:29 ET, the Bloomberg Dollar Index stands at IDR 11,965 per US dollar (-0.65 percent).
The balancing of the rupiah around the IDR 12,000 level has also led to speculation that Indonesia's central bank (Bank Indonesia) will intervene in the market to support its exchange rate. Whenever it feels necessary, Bank Indonesia will use its foreign exchange reserves to safeguard the rupiah. Previously, officials of Bank Indonesia stated that IDR 11,500 is considered as a convenient level of the currency within the present economic context. However, it can also choose to raise the benchmark interest rate (BI rate). Between June and November 2013, Bank Indonesia already raised its BI rate from 5.75 percent to 7.50 percent in order to curtail high inflation, but at the expense of higher economic growth. The next Board of Governor's meeting of Bank Indonesia is scheduled for 12 December 2013.
The advantage of a depreciating rupiah exchange rate is that Indonesia's export products are more competitive on the global market. The small October 2013 trade surplus of USD $42.2 million was partly the result of an increase in export volumes of crude palm oil and rubber. In recent years, Indonesia's export have been hit hard by falling demand for - and prices of - commodities. The country is highly vulnerable to volatile commodity prices as 60 percent of its exports are commodity-based exports.
Indonesia Stock Exchange
During the first trading session on Wednesday (04/12) Indonesia's benchmark stock index (known as the Jakarta Composite Index or IHSG) fell 0.88 percent to 4,251.02 points amid mixed Asian markets. The sharp depreciation of the rupiah exchange rate over the past two days seems to be a major contributing factor behind the weakening IHSG.
Further Reading:
• Indonesia Rupiah Exchange Rate Today: Down due to US Dollar Demand
• Indonesia Inflation Update: Consumer Price Index Moving Sideways
• Indonesia's October 2013 Trade Surplus Provides a Glimmer of Hope
• Analysis of the Indonesian Rupiah Exchange Rate in November 2013
• Indonesia Exchange Rate
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