Indonesia: Indonesian rupiah slides to multi-year low in August
August 18, 2015
The Indonesian rupiah (IDR) traded at 13,787 per USD on 17 August, which was 18.1% 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 11.0% so far this year, making it the second-worst performer among Asian currencies, only behind the Malaysian ringgit.
The currency’s downward trend is driven by a combination of factors, both domestic and external. Disappointingly weak economy growth, falling exports, anticipation of an interest rate hike in the U.S. later this year, 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