Indonesia Prepares Policy Package to Support the Rupiah amid External Pressures
Darmin Nasution, Indonesian Coordinating Minister for Economics, told reporters on Thursday (27/08) that the government is set to announce a policy package aimed at supporting the rupiah. The package, set to become effective next week, involves deregulation and tax holidays. Further information is expected to be presented by Indonesian Finance Minister Bambang Brodjonegoro later today.
Nasution said that the new policies are designed to make economic activity smoother and attract foreign currency inflows. Indonesia’s rupiah is the second-worst performing emerging Asian currency (after Malaysia’s ringgit) so far this year, depreciating approximately 13.6 percent against the US dollar amid bullish US dollar momentum triggered by US monetary tightening, low commodity prices, and China’s recent yuan devaluation.
Earlier this week Finance Minister Brodjonegoro said it is better that the Federal Reserve will soon make a decision on the timing of higher US interest rates in order to reduce volatility on the financial markets (markets need certainty). However, China's recent yuan devaluation caused an even stronger US dollar as well as uncompetitive US exports. As such, the Federal Reserve may decide to postpone hiking its key rate for a while. Yesterday (26/08), Federal Reserve Bank of New York President William Dudley said that a Fed Fund Rate hike in September looks “less compelling” due to current market volatility and turmoil in China. Today, the US dollar continued to strengthen against Japan’s yen in Asian trade (indicating improved risk sentiment as Japan's yen is an important safe haven asset), partly due to Wednesday’s rebounding indices on Wall Street and positive US durable manufactured goods orders data. The Dow Jones Industrial Average jumped nearly four percent to 16,285.5 points on Wednesday.
Based on the Bloomberg Dollar Index, the rupiah has appreciated 0.40 percent to IDR 14,076 per US dollar by 14:25 pm local Jakarta time on Thursday. However, Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.18 percent to IDR 14,128 per US dollar on Thursday (27/08). Bank Indonesia was spotted selling US dollars (directly).