Rupiah will Remain Prone to Correction
18 September 2014 12:32 WIB
TEMPO.CO, Jakarta - A number of analysts expect the rupiah exchange rate to remain vulnerable in the near future. Aside from being affected by global fluctuations ahead of the Federal Open Market Committee (FOMC) meeting, the rupiah will be affected by political dynamics in the country.
"The market is also looking at the president's decision regarding ministerial posts," Juniman, chief economist of Bank Internasional Indonesia (BII), told Tempo yesterday.
Juniman said the rupiah rate could be corrected if Jokowi's decision does not meet market expectations, since new ministers will determine future policies. "Investors will respond by pulling their funds out of Indonesia or not."
Yesterday, Bank Indonesia (BI) mid rate reached Rp11,908 per US dollar, down from Friday's Rp11,831. In the currency trade, the rupiah had climbed to 11,446.8 per US dollar in mid-May due to the co-called Jokowi effect, i.e. when parties formed a coalition declaring their support for presidential candidate Joko Widodo.
Vaninder Singh, chief economist Southeast Asia Royal Bank of Scotland, said the rupiah rate will be stable as liquidity conditions are also stable. "If there is fluctuation, it would not be significant; the government is more inclined to maintain the status quo," he said.
Meanwhile, Currency Management Group director Farial Anwar said the rupiah depreciation occurs simultaneously with greenback's gain against almost all global currencies. "The gain caused investors to switch from gold to dollars," he told Tempo.
The greenback strengthening, said Farial, reflects market expectations that Fed's meeting will result in a stimulus cut in the market. "The market also expects interest rates to go up by 0.25 percent in anticipation of a rise in inflation."
Finance Minister Chatib Basri said hedging will stabilize the exchange rate, which will help BI provide foreign exchange. That way, costs can be saved. "The state budget's burden will lessen that way," he said.
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