Indonesia: Indonesian rupiah weakens to lowest level in almost four years
June 19, 2013
By 18 June, the Indonesian rupiah (IDR) traded at 9,905 per USD, which was 1.5% weaker than the level registered on the same day of the previous month. Moreover, the figure follows on a 0.7% decline recorded in the month of May. In fact, the IDR's value against the U.S. dollar has now fallen to its lowest level since September 2009. On a year-to-date basis, the rupiah has lost 2.8% versus the USD.
The Indonesian currency has been on a downward trend since mid 2011. In addition, like many other emerging market currencies, the rupiah has been negatively affected by the speculation that the U.S. Federal Reserve may start tapering QE soon. The weaker currency put a substantial pressure on the country's current account balance in 2012, which registered its first deficit since 1997, mainly due to the soaring cost of petroleum imports.
That said, recent developments might be supportive for the IDR. On 17 June, the country's parliament approved the amended 2013 Budget, which incorporates a price hike for gasoline and diesel. Although this will put an upward pressure on inflation, the reduction in fuel subsidies should have a positive impact on both the fiscal and current account deficits. Moreover, at its 13 June monetary policy meeting, the Central Bank raised its BI rate for the first time since February 2012, which should take some pressure off the rupiah.
FocusEconomics Consensus Forecast panellists expect the rupiah to trade at 9,784 per USD by the end of this year. For 2014, the panel projects the rupiah to trade at 9,580 per USD.