Indonesia: Indonesian rupiah drops to multi-year low
March 18, 2015
The Indonesian rupiah (IDR) traded at 13,242 per USD on 16 March, which was 16.6% weaker than the level registered on the same day of last year. The rupiah had not traded at such a low value against the U.S. dollar since 1998. The rupiah has lost more than 6.0% so far this year and will likely hold above the 13,000-per-USD barrier in the near term.
The currency’s downward trend has been driven by a combination of factors, including high demand for dollars and capital outflows in anticipation of an interest rate hike in the U.S. later this year. Moreover, the Central Bank has signaled that it is comfortable with a weaker currency on the grounds that a devalued rupiah will reduce the current account deficit through lower imports of consumer goods and greater export competitiveness. The Bank has intervened in the foreign exchange market to avoid a steep drop-off but is expected to allow the rupiah to depreciate slowly going forward.
Author: Carl Kelly, Economist