Indonesia: Indonesian rupiah slides in September to levels not seen since 1998
September 16, 2015
The Indonesian rupiah (IDR) traded at 14,407 per USD on 15 September, which was 20.8% 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 the 1998 Asian financial crisis. The rupiah has lost more than 16.0% so far this year.
The currency’s downward trend is driven by a combination of factors, both domestic and external. Disappointingly weak economic growth, falling exports, and the recent depreciation of the Chinese yuan are driving demand for dollars in place of the rupiah and also pushing capital outflows.
The Central Bank has gone beyond the typical interventions in the foreign exchange market, banning the use of foreign currencies in domestic transactions. Moreover, in late July, the government raised import tariffs on more than 1,000 goods to encourage the purchase of local goods in domestic currency. Earlier this year, the Central Bank had pointed to the benefits of a devalued rupiah in helping reduce the current account deficit through lower imports of consumer goods and greater export competitiveness. However, as external pressures mount and global volatility increases, it is unclear if a steeper and damaging drop-off can be avoided.
Author: Carl Kelly, Economist