TEMPO.CO, Jakarta - The US central bank’s (The Fed) resolution to taper its monetary stimulus pushed the Indonesian rupiah to 12,200 per US dollar. In money market transactions yesterday, the rupiah once again depreciated by 41 points (0.34 percent) to 12,209 per US dollar. Rupiah weakens along with the strengthening of the US dollar against the currencies of other developing markets.

An economist of PT BNI Securities, Heru Irvansyah, said The Fed’s decision to cut US$10 billion per month off its monetary stimulus has strengthened the US dollar. “Add to that the increasing demand for Uncle Sam’s currency towards the end of the month and rupiah continues to weaken.”

Unlike the stock market where The Fed’s tapering decision gave a positive sign by reducing uncertainty, the money market interprets the stimulus cut as a reduction in dollar liquidity in developing markets. Consequently, market makers tend to sell.

Domestically, Bank Indonesia’s obstinacy in keeping its benchmark interest rate (BI Rate) at 7.25 percent, makes it difficult to control the outflow of dollar-denominated foreign capital. “It seems that in the first quarter of 2014, BI will once again resort to raising interest rates aggresively,” Heru said.

According to Heru, it is highly unlikely that the rupiah will strengthen, beacuse Indonesia’s current account deficit in the final quarter of this year is still expected to be negative. Moreover, the demand for dollars during the holidays is usually high. Even if monetary data improves—an increase in foreign currency reserve or an improvement to the balance of trade—it will do little to mitigate the downward pressure on the rupiah.

Today, the rupiah is predicted to trade around 12,160-12,240 per US dollar. “Without a meaningful intervention by BI, rupiah may continue to slip towards 12,300 per dollar until the beginning of the year,” Heru said.

PDAT | M. AZHAR