Indonesia: Rupiah plunges despite Central Bank intervention as coronavirus fears cause flight to safety
The rupiah traded at IDR 15,218 per USD on 18 March, marking a 10.2% depreciation from the same day of the previous month. Moreover, the currency was down 6.4% year-on-year and 8.8% year-to-date. This was despite Central Bank efforts to prop up the currency through FX and bond purchases and a reduction in foreign-exchange reserve requirements.
While the fall in the rupiah was part of a broader withdrawal from emerging-market assets, Indonesia’s currency depreciated by more than those of many Asian peers. This is likely a result of Indonesia’s sizeable current account deficit, and the high foreign ownership of government bonds and corporate debt making the economy more vulnerable than others to capital outflows.
Looking ahead, the evolution of the coronavirus pandemic and its impact on the global economy will have a key bearing on the rupiah, which is likely to exhibit heightened volatility.
Regarding the impact on international reserves, analysts at UOB commented:
“We might see a further decline in FX reserves on the back of the ongoing uncertainty from the COVID-19 outbreak, which may result in slower foreign exchange earnings and capital outflow.”