TEMPO.CO, Jakarta-An economist for Bank Central Asia (BCA) David Sumual said 'Brexit' may cause the rupiah to experience a downtrend - that said, the extend of the downtrend is rather hard to predict due to its rather wide trading margin.
"The rupiah may end up trading around the Rp13,500 and Rp13,600 per US dollar mark," said David to Tempo on Friday, June 24, 2016.
The wide trading margin, continued David, is reflective of the rupiah's dependence on external factors in determining its trading position. He said that if the UK did not decide to opt out, then the rupiah might trade steadily around the Rp13,200 mark - however, since the decision has been made to opt out, a depreciation of the rupiah is to be expected.
David explained that when trading commenced earlier on Friday, the rupiah had traded at around the Rp13,000 mark per US dollar - but almost immediately plunged to trade at Rp13,416 against the greenback. On Thursday, the rupiah had concluded trading at Rp13,396 per US dollar.
"We are concerned about the domino effect that the Brexit may cause," he said.
According to David, a Brexit will cause the UK's economic growth to slow - and consequently, the value of the British pound in the foreign exchange market will drop. This will in turn, he continued, cause investors to turn their eyes to safe-haven currencies, which includes the US dollar and the Japanese yen.
Capital flight, David said, will also be more likely as a result of the decision to opt out of the Union. "The increasing uncertainty in the global market will cause banks to tighten up their lending policies - and it is not unlikely that some banks might collapse as a result of the Brexit," he said.
BAGUS PRASETIYO
