Indonesian Rupiah Touched the Worst Level Since 1998’s Crisis

Bank Indonesia (BI) has intervened the foreign exchange market to stabilize Rupiah after plunged near to Rp14,000 over the Greenback - Photo Privacy

JAKARTA (TheInsiderStories) – Emerging currencies suffered today amid the global pressured on the financial market. Indonesian Rupiah dropped significantly to the worst level since 1998’s crisis at Rp14,710 against US dollar.

According to Coordinating Minister for Economic Affairs Darmin Nasution, the pressure on Rupiah occurred by Argentina’ financial crisis and other global pressures.
He said the problems in Argentina is quite surprising caused the “Tango country” has received assistance from the International Monetary Fund (IMF) amounting to $50 billion.
Emerging market risk rose over the Turkish Lira and Chinese Yuan deterioration. In addition, other issues like the US and Chinese trade wars also give a negative sentiments for the Rupiah.
After the official meeting of the two countries, US and China slapped 25 percent tariff on $16 billion of each other’ goods. Is mean, the trade war that has subsided and made the market breathe a little relieved makes the market tense again.
The heat of the trade war has made investors turn again to the US dollar which is considered a safe haven. Nasution asserted this global pressures will hurt the Indonesian economy especially on the current account deficit(CAD) side. The government, he said, still trying to find out the impact to the export and import of the country.
Bank Indonesia has reported that Indonesia’s Balance of Payments (BoP) in the second quarter of 2018 had experienced a $4.3 billion deficit, mostly caused the increased of CAD which was recorded at $8 billion or equals to 3 percent of the Gross Domestic Product (GDP).
The number was higher compared to the previous quarter of $5.7 billion or 2.2 percent of the GDP. The rise of BI’s interest rate by 25 basis points to 5.5 percent was unable to hold rupiah weakening, as investors are more concerned with Indonesia’s CAD.

The governor Perry Warjiyo said the central bank took into account the fears of the Turkish and Argentina crisis will spread to other emerging countries. In addition, he added, the BI saw the dynamics of economic growth in various countries such as the US that expected to have strong economic growth driven by consumption and investment. While Europe, Japan, and China are expected to suffer a decline in economic growth.

Furthermore, BI also considered the impact of monetary policy conducted by several countries such as the Federal Reserves that expected to increase its benchmark interest rate in September. Meanwhile, the European Central Bank and Japanese Central Bank are expected to hold its benchmark interest rate.

Warjiyo said that Bank Indonesia will intervene money market and securities in an attempt to stabilize the financial system, especially rupiah exchange rate. The central bank was estimated spent around $6 billion in market intervention by the end of July.

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