Indonesia’s rupiah yesterday weakened past 15,000 per US dollar for the first time in 20 years amid a souring of sentiment toward emerging-nation assets and as oil prices jumped.
The currency has tumbled almost 10 percent this year as rising US interest rates have boosted the dollar and as the nation’s current-account deficit has left the economy exposed to the financial turmoil that afflicted Turkey and Argentina.
Crude prices have almost tripled since February 2016, putting pressure on the oil-importing nation.
Photo: AFP
“Given the rise in US interest rates, higher oil prices, which may see a wider trade deficit, and a stronger dollar in recent days, it was proving difficult for Bank Indonesia to hold the line at 15,000,” said Khoon Goh (吳昆), head of research at Australia and New Zealand Banking Group Ltd in Singapore. “If sentiment doesn’t improve, we risk further weakness towards the 15,200 region.”
The rupiah has weakened, even as Bank Indonesia has consistently intervened to limit its decline and raised interest rates five times since May.
The currency dropped to as low as 15,025 per dollar, the weakest since the Asian financial crisis in July 1998.
“Indonesia is now a net importer of oil, so the higher crude prices and weaker rupiah are fanning concern that inflation will quicken,” said Toru Nishihama, emerging-market economist at Dai-ichi Life Research Institute in Tokyo. “With oil prices rising, the Fed normalizing policy and Indonesia having fiscal and current-account deficits, negative speculation is harder to contain.”
Indonesia’s bond have also been under pressure. The benchmark 10-year bond yield yesterday climbed nine basis points to 8.1 percent, having increased from 6.32 percent at the end of last year.
The nation’s key stock index has declined 7 percent this year.
In addition to raising borrowing costs, Bank Indonesia has announced the introduction of domestic non-deliverable forwards, which it says would provide an alternative for companies wanting to hedge dollar exposure and help reduce rupiah volatility.
Indonesia is also close to finalizing incentives for exporters holding billions of dollars in banks to encourage them to convert the funds into rupiah, as the central bank steps up efforts to shield the local currency from a global emerging-market rout.
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