Having held out from breaching the Rp 13,000 per US dollar level for days, the domestic currency finally breached the psychological threshold as economic concerns on China and the Ukraine affected investors’ appetite for emerging-market assets.
The rupiah on Thursday weakened 0.4 percent to trade at 13,022 per dollar, according to the Jakarta Interbank Spot Dollar Rate (JISDOR). Meanwhile, local currency rates compiled by Bloomberg showed that the currency had touched 13,028, its weakest level since the 1998 Asian financial crisis.
Bank Indonesia (BI) Senior Deputy Governor Mirza Adityaswara said that the rupiah’s weakness was driven by external factors that had affected investor sentiment, notably the recent interest-rate hike in the Ukraine and economic slowdown in China.
“We should not be worried if our depreciation is still in line with regional developments,” Mirza told reporters in Jakarta on Thursday.
“Bank Indonesia will remain in the market to reduce currency volatility and ensure an adequate supply of foreign exchange.”
Chinese Premier Li Keqiang said Thursday that his country would aim for economic expansion of around 7 percent this year, its lowest target in more than 15 years, and lower than last year’s target of 7.5 percent.
China is Indonesia’s largest trade partner.
The International Monetary Fund (IMF) has estimated that every 1 percent reduction of economic growth in China could decelerate the Indonesian economy by up to 0.5 percent, mainly due to the strong trade links between the two countries.
“Bank Indonesia should not exhaust its reserves trying to defend the [rupiah rate] Rp 13,000 [per dollar] level,” Chua Hak Bin, an economist with Bank of America Merrill Lynch, told The Jakarta Post recently.
“Easing inflationary pressure is also reducing concerns about the pass-through to inflation from a weaker rupiah,” he noted.
original source: http://www.thejakartapost.com/news/2015/03/05/external-factors-put-pressure-rupiah.html#sthash.kQn0BiN9.dpuf