Currency of Indonesia Update: Rupiah Feels Impact of Powell Speech
Based on the Bloomberg Dollar Index the Indonesian rupiah depreciated 0.53 percent to IDR 13,751 per US dollar on Wednesday (28/02), the weakest level against the greenback in slightly over two years. The weakening of the rupiah is in line with the performance of most other currencies as the US dollar is at a three-week high after Federal Reserve Chairman Jerome Powell struck a hawkish tone in his first congressional testimony.
Powell said he wants to prevent the US economy from overheating and stick to the plan to gradually raise interest rates. Markets continue to expect the Federal Reserve to raise interest rates three times this year (starting from March 2018) as a result of Powell's hawkish remarks.
Doddy Zulverdy, Head of the Monetary Management Department at Indonesia's central bank (Bank Indonesia), said the rupiah's depreciation today was actually modest compared to several other Asian currencies. He added that Bank Indonesia continues to monitor all global developments, especially the situation in the USA, while confirming that Bank Indonesia has already undertaken measures to keep rupiah volatility under control. Bank Indonesia is not expected to led the rupiah weaken far beyond the IDR 13,700 level.
Ahead of the March policy meeting of the Federal Reserve, where we may see another interest rate hike, the Indonesian rupiah is likely to remain under pressure. Pressures can rise if US economic data such as Q4-2017 GDP growth and personal consumption expenditure (both are to be released soon) are strong.
Earlier this week, International Monetary Fund (IMF) Managing Director Christine Lagarde, who visited Jakarta to meet Indonesian President Joko Widodo and to monitor preparations for the annual IMF meeting in October on Bali, reminded Indonesian policymakers to remain wary of the possible impacts of Fed normalization on financial stability, especially the volatile projections of capital outflows.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.42 percent to IDR 13,707 per US dollar on Wednesday (28/02).
Indonesian Rupiah versus US Dollar (JISDOR):
| Source: Bank Indonesia