Market Speculation Triggers Rupiah`s Weakening: Finance Minister

TEMPO.CO, Jakarta - The exchange rate of the Rupiah against the U.S. dollar weakened to a level of Rp14,200 on Tuesday morning, which was triggered by speculations made by market players.

The speculation was in response to the expectation of the U.S. Federal Reserve (Fed) raising interest rates, Finance Minister Bambang Brodjonegoro said on Tuesday.

The Fed is expected to raise interest rates after the country reported improved employment data, he added.

"Lately, all parties are speculating in the currency market because the number of unemployed in the United States has decreased. Many people have speculated that the United States will raise interest rates soon," he said on Tuesday.

The speculation, according to Brodjonegoro, has also intensified as the market had expected that the hike in the Feds interest rates would be realized during the second half of 2015.

"This is pure speculation," he said.

According to Brodjonegoro, the government and the Bank of Indonesia (BI) have adopted measures to mitigate the negative impact of the global economic uncertainty on the domestic financial market.

Among these measures is ensuring that the structural reforms in the economy continue. In addition, maintaining foreign exchange (forex) reserves at a safe level, or at least using them for six months worth of imports.

The government has also formulated new economic policies that will be announced on Wednesday, with one of them being related to the fiscal and financial sectors.

BI also reported that the forex reserves up to August 2015 had amounted to US$ 105.34 billion.

However, the exchange rate did not recover all day on Tuesday. Based on the Rupiahs exchange rate traded in the interbank on Tuesday afternoon, the Rupiah weakened by 10 points to Rp14,276 from Tuesday morning at Rp14,266 per U.S. dollar.

"The weakening of the currency in developing countries, including in Indonesia, is continuing. The market is still reflecting an aversion to riskier currencies following the likelihood of the Fed raising interest rates," the Head of Monex Investindo Futures Research, Ariston Tjendra said.

Tjendra added that the aversion to risk assets by domestic market participants is in line with the projection of economic growth in Indonesia, which is still expected to slow down, thus dimming investment interest towards domestic assets.

"The economic activity is still sluggish, lowering the investment potential of Indonesia. It is expected that the policies formulated by the Indonesian government will encourage the domestic economic sectors," he said.

ANTARA