Rupiah falls, BI calms market

JAKARTA. The rupiah fell to its lowest level in 17 months during Wednesday’s trading but bounced back amid speculation that Bank Indonesia (BI) had intervened to ease the selling pressure on the rupiah due to the lingering global economic slowdown.

The rupiah gained 0.1 percent to Rp 9,040 against the US dollar as of 4:10 p.m. Jakarta time, according to local bank prices compiled by Bloomberg. The currency had earlier plunged by 1.5 percent to Rp 9,180, its weakest level since June last year.

A persistant decline in the rupiah could result, among other things, in more expensive imports and higher overseas borrowing costs for both the government and companies.

However, BI officials and economists dismissed any serious impact from the recent volatility, citing external factors and the trailing effect of other declines in regional currencies.

“We don’t need to be overly worried by the negative global sentiments triggered by Europe. Our depreciation is in line with other currencies, especially in the Asian region,” BI deputy governor Hartadi Sarwono said.

On Wednesday, selling pressures were also seen in the stock market, where Rp 346 billion of foreign investors’ net sales brought the stock index down by 1.3 percent, to 3,687.

Global financial markets have been hit by high volatility since August, as signs became clearer that the world’s economy was headed for a slowdown over the eurozone debt crisis and the United States’ stalling economic recovery — prompting investors to turn away from emerging market assets and seek safer havens in investment instruments like the US dollar.

“The weakening of the rupiah is being exacerbated by high corporate demands for foreign exchange currency as the year’s-end approaches, but the supply is limited,” Hartadi said. “Therefore, BI will continue to react to the market in a timely and measurable manner to reduce market volatility.”

The central bank has been spending trillions of rupiah from its foreign exchange (forex) reserves to buy rupiah and government bonds in the secondary market to prevent the rupiah from dropping too low.

“We have enough forex reserves for this monetary operation,” said BI’s director for economic and monetary policy research, Perry Warjiyo.

Indonesia’s forex reserves declined to US$113.96 billion at the end of October this year, from $114.5 billion in September, and after peaking to a record high of $124.64 billion in August, as the central bank continued its market interventions amid global financial market turmoil that put pressure on the rupiah.

“All currencies in the Asian region are being pressured downward. The rupiah is not exceptional,” Perry said.

So far this year, the rupiah has weakened 1.25 percent, as against depreciation in the Korean won (2 percent), the Singaporean dollar (1.57 percent), the Thai baht (3.93 percent) and the Malaysian ringgit (3.6 percent), Bloomberg data shows.

The won weakened 0.6 percent to 1,151.85 per dollar on Tuesday, having earlier reached a four-week low of 1,151.94, according to Bloomberg. The baht fell 0.3 percent to 31.27, while the ringgit fell by 0.1 percent to 3.1785.

Economists reiterated that the depreciation is a short- to medium-term issue, and that over the longer term, the rupiah remains an attractive asset given Indonesia’s resilience to external slowdowns. The country’s gross domestic product (GDP) is expected to grow 6.5 percent this year on the back of strong domestic consumption and rising investment.

“Downward potential is there, but foreign and domestic investors don’t need to panic. The problems are not in Indonesia, but overseas,” Bank CIMB Niaga economist Andry Asmoro said, citing eurozone debt woes that have spread from Greece to Italy and Spain.

The World Bank recently warned that the Indonesian economy may face growing risks stemming from escalating global uncertainties and lower commodity prices, which may affect the country’s economic growth.

Indonesia’s economy, according to the agency, is projected to grow by 6.3 percent next year, a slight decline from the government’s 6.4 percent estimated for this year and 6.7 percent for 2012. (Esther Samboh/The Jakarta Post)