A salesperson serves consumers who will exchange money at one of the money changers in Jakarta, Monday (23/7/2018).
JAKARTA, KOMPAS – External factors continue to pressure the rupiah. The rupiah has depreciated 12 percent since the beginning of the year, while foreign exchange reserves have decreased US$17.1 billion.
The rupiah has fallen 12 percent against the US dollar during since January. Three main factors have caused the sharp depreciation of the rupiah, including the escalating tension of the trade war between the United States and China, the rise in the 10-year US Treasury bond yields and the rise in world crude prices.
Based on the Jakarta Interbank Spot Dollar Rate reference rate, the rupiah weakened to 15,182 per US dollar on Friday. On the spot market, the rupiah traded at 15,165 to 15,193 per US dollar.
Atma Jaya Catholic University economist A. Prasetyantoko told Kompas that US-China tensions were escalating not only because of trade issues. The US wanted China to revoke regulations that required technology transfers from US companies investing in China. The US does not want China to replicate its technology.
"Another factor is the increase in world oil prices. It can cause negative market sentiment among crude oil importing countries that have a current account deficit," he said.
According to Bloomberg, US-China tensions are escalating because of China\'s alleged tiny-chip spying on US tech giants. Chinese spies attacked about 30 companies, several major banks, and US government agencies.
Prasetyantoko said this year’s depreciation was still relatively small – from Rp 13,542 per US dollar in early January to Rp 15,182 per US dollar. However, the fall had exceeded the market consensus of 10 percent.
This indicated stronger pressures on the rupiah. Bank Indonesia (BI) had intervened with a series of market operations and by raising its reference rates. "If the pressure on the rupiah grows stronger, BI needs to increase the benchmark interest rate proportionally by 25-50 basis points by the end of the year," he said.
BI Governor Perry Warjiyo said the rupiah had again weakened upon the increase in the 10-year US Treasury yields to 3.23 percent after the US Federal Reserve raised its benchmark interest rate. This made the Treasury bonds more attractive to trigger the migration of foreign funds from developing countries.
The rupiah’s weakening has caused a decline in Indonesia\'s foreign exchange reserves by $17.1 billion in January-September. This year, the largest drop in foreign exchange reserves was a decline of $3.1 billion in June and September.
Meanwhile, the government has issued a series of regulations to control imports to reduce the trade deficit. One of these is the gradual implementation of import duty security measures (BMTP) on imports of tiles, paving products, fireplace tiles, and wall tiles.
In 2017, 1.26 million tons of ceramic tiles were imported, a 17.5 percent increase from 1.07 million tons in 2016. "The BMTP has been imposed to prevent or recover the domestic industry’s losses due to a surge in imported tiles," said Mardjoko, the chairman of the Trade Ministry’s Indonesian Trade Security Committee (KPPI).
Government response
The government had responded to pressures from growing global uncertainties with a medium-term policy. In addition to evaluating the balance of payments, the policy aimed to maintain the stability of banking finances and to manage the state budget.
"The continuing global uncertainty cannot be avoided. For this reason, we must prepare medium-term measures, not just short-term," said Coordinating Economic Minister Darmin Nasution.
Meanwhile, the Jakarta Composite Index (JCI) remained in the red during trading on Friday, closing at 5,731.93 as foreign investors posted Rp 1.26 trillion in net sales. "The significant weakening of the rupiah has raised concerns that the non-performing loans ratio will rise," said CSA Research analyst Reza Priyambada. (HEN/KRN/DIM/ARN)
