Indonesia: Indonesian rupiah plunges further
September 18, 2013
The Indonesian rupiah (IDR) traded at 11,445 per USD on 18 September, which was 10.2% weaker than the level registered on the same day of the previous month. The figure follows the 6.3% decline recorded in August. The IDR's value against the U.S. dollar has now fallen to its lowest level since April 2009. On a year-to-date basis, the rupiah has lost a staggering 18.8% against the USD.
The currency's downward trend, which began in mid-2011, has been driven by a combination of factors, including slowing economic growth, rising inflation, and falling exports. Concerns over the potential impact of a US decision to taper its monetary stimulus, along with Indonesia's rapidly-widening current account deficit, have caused further devaluation in recent months.
In order to defend the rapidly falling rupiah, the Central Bank raised its BI rate by 50 basis points in an extraordinary meeting on 29 August. This decision was followed by a surprising additional hike of 25 basis points at the Bank's 12 September meeting, pushing the BI rate up to 7.25%. In addition, the government is enforcing a series of recently-introduced measures to narrow the trade deficit.
FocusEconomics Consensus Forecast panelists expect the rupiah to trade at 10,054 per USD by the end of this year. In 2014, the panel projects the rupiah will trade at 9,867 per USD.
Author: Carl Kelly, Economist