JAKARTA (Yosefardi) – The rupiah weakened back to Rp13,838 against the US dollar on Thursday (August 20) while Bloomberg data quoted that the rupiah depreciated 0.31% to Rp13,885 per dollar after touching its lowest at Rp13,917 yesterday.
The central bank (Bank Indonesia/BI) will soon optimize the monetary operation through seven measures a short term policies focus on stabilizing the rupiah. That seven measures will run under three strategies.
First, to strengthening the rupiah liquidity management in currency market. Second, to strengthening the supply and demand sides of foreign currencies (forex), and third, to strengthening the forex reserves.
That seven measures are; (1) to intervene the currency market, (2) to buy government bonds in secondary market, (3) to conduct an open market operation, (4) to change settlement of forex swap auction to once a week, from current twice a week, (5) to change mechanism of term deposit acution for foreign currencies, (6) to lower the minimum purchase of foreing exchange (forex) to US$25,000 per customer per month from current US$100,000, and (7) to coordinating with the government in strengthening the forex reserves.
BI governor Agus Martowardodjo noted that the transaction in US dollar has surged, especially transaction for less than US$100,000 value. BI will allow the purchase of US dollar without underlying transaction to maximum US$25,000 per month, instead of maximum US$100,000 per month.
Agus said BI will release new regulation on forex transaction aiming to avoid the speculation. BI would only support the forex transaction for economic purposes.
The China economic slowdown and expected hike of Fed rate are 2 main factors hitting the local currency, Agus noted. China posted 10% growth of its economy in the past ten years, but now its growth has declined to 7% last year and 6.7% this year. The drop in commodities prices also hit the rupiah.
So, Agus said, Indonesia should prepare to face the era of currency war following China’s decision to devaluate its yuan.
Contrary to the expectation of most analysts, the US Federal Reserve will possibly refrain from raising its key interest rate in September.
Some may think it is positive for emerging market assets that the looming US interest rate hike is delayed again, but prolonged uncertainty about the timing of higher US interest rates will also negatively affect emerging market assets.