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Why is the Indonesian Rupiah Almost at Rp 14,000 per US Dollar?

The Indonesian Rupiah is now approaching the Rp 14,000 per US Dollar level after it depreciated on Monday by 0.59 percent to Rp 13,975 per US Dollar. This is the currency’s weakest position since December 2015.

There are many factors to consider as to why the Rupiah is depreciating. Although the domestic economy is strong, external factors are still putting pressure on the currency.

The US Dollar strengthened on Monday after a three percent rise in the ten-year US treasury yield, caused by concerns over higher inflationary pressures in the USA, signs of easing trade-related tensions between the USA and China, and worries about increases in US debt issuance.

The rising US inflation would mean that the US Federal Reserve may decide to speed up the pace of interest rate hikes in 2018, causing foreign investors to withdraw funds from emerging market assets, which includes Indonesian assets. The Federal Reserve policy meeting is scheduled for 1-2 May, and there is a possibility of the Rupiah weakening beyond the Rp 14,000 per US Dollar level prior to this meeting.

Other factors weakening the Rupiah are the foreign debt repayments by local companies in April, as well as the traditional dividend payout season in the April-May period, as these boost the demand for the US Dollar.

Expect the volatility of the Rupiah in the next few days.

Source: Indonesia Investments

Photo courtesy of The President Post

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