Indonesia reassures citizens as rupiah weakens to 4-year low against US dollar

Indian national Avinash Rao, 38, is more cautious about his spending these days. 

The tax advisor, who works in Jakarta, is paid in rupiah and remits money to his family in India regularly.

With Indonesia’s currency weakening in recent months, Mr Rao has had to cough up more of his salary in order for his family to receive the same amount in Indian rupees as before.

“A few months ago, I used to get 1 Indian rupee if I paid 181 Indonesian rupiah,” he said.

“Since the rupiah depreciated against the United States dollar and other major currencies, I need to spend 195 rupiah to purchase 1 Indian rupee.”

Workers who get paid in US dollars, on the other hand, are not complaining.

Malaysian expatriate Letchumi, who works in the pulp and paper sector and goes by one name, told CNA: “I do benefit given that USD is stronger now.”

In Indonesia, some have cheered while others' pockets have been hit as the rupiah sank to a four-year low last week against the US dollar as the market reopened after 10 days of Idul Fitri holidays.

It weakened to 16,200 per US dollar, prompting intervention by Indonesia’s central bank to support the currency. On Friday (Apr 19), the rupiah was 16,257 against the dollar, according to Bank Indonesia. 

It is not alone – many Asian currencies have tumbled against the US dollar this year.

Last week, the finance chiefs of Japan and South Korea expressed concerns over the fall of the yen and won against the dollar.

The yen has lost about 8 per cent to the dollar this year, while the won’s slide is about 6 per cent. The figure is about 5 per cent for the rupiah.

Other Asian currencies that have lost value against the US dollar this year include the Chinese yuan, Malaysian ringgit, Philippine peso and Singapore dollar.

WHY IS THE RUPIAH WEAKENING?

There are several reasons why the rupiah is weakening, said Mr Andry Satrio Nugroho, an economist at the Institute for Development of Economics and Finance (INDEF).

“The main factor is high inflation in the US, which prompts the (Federal Reserve) to increase its interest rate and there are no signs it will be lowered,” he said. 

The Fed’s interest rate is currently at a 23-year high of about 5.25 per cent to 5.5 per cent. 

Another reason why the rupiah is underperforming is the war in the Middle East.

“Both trigger capital outflow from developing countries,” said Mr Andry.

Higher Fed interest rates attract investment capital as investors seek higher returns on bonds and interest-rate products, according to financial media website Investopedia.

In turn, global investors sell their investments denominated in their local currencies for investments denominated in US dollars. This results in a stronger US dollar.

For the rupiah in particular, concerns about a new government taking office in October may also have played a role in its depreciation, noted Mr Mohammad Faisal, executive director of the Centre of Reform on Economics (CORE) Indonesia, a think tank which focuses on research in economy and industry.

"Especially how the fiscal management will be under the new elected government," he said.

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