Indonesia’ foreign exchange reserves slightly up to US$137.0 billion in August from previous month stood at $135.1 billion, Bank Indonesia reported today - Photo: Privacy

JAKARTA (TheInsiderStories) – The United States’ (US) central bank statement will implies the planned to increase its benchmark rate makes the Rupiah touched again a five-years lowest level at Rp14,638 against the greenback on Thursday (23/08).

The Rupiah weakened 0.43 percent compared to previous day. In line with the spot market, Bank Indonesia’ middle rate also dropped 0.36 percent to the level of Rp14,620 over the US dollar.

The war between US’ President Donald Trump and the Federal Reserves (the Fed) on the planned has give an impact to the emerging market. Emerging market risk also rise 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, because the dollar index strengthen again after shorten dropped over Trump and the Fed war.

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.

Commenting on the global situation, Coordinating Minister for Economic Affairs, Darmin Nasution asserted it 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.

“If reached 3 percent or more, we need to consider it as a yellow signal,” Nasution told reporters on Wednesday (22/08) in Jakarta.

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 (bps) to 4.50 per cent

The rised of BI seven-days reverse repo rate by 25 basis points to 5.5 percent was unable to hold rupiah weakening, as investors are more concerned with Indonesia’s CAD. This interest rate hike was the fourth this year. The central bank had raised its key interest rate by 1.25 percent this year.

The governor Perry Warjiyo said that the interest rate hike was an attempt to maintain competitiveness of domestic financial market and CAD. The Bank was taken into account the internal and external factors before raising its interest rate hike.

In the external factor, he said, the central bank  took into account the fears of the Turkish 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 Fed that expected to increase its benchmark interest rate in September. Meanwhile, the European Central Bank (ECB) and Japanese Central Bank are expected to hold its benchmark interest rate.

“We also saw the trade war tension triggered by the US against several countries and the impact to currency exchange rate,” Warjiyo said.

In the internal factor, Warjiyo said that Indonesia’s trade balance and balance of payments are quite challenging. The country posts $3.08 billion trade deficit in January-July 2018 with import booked $107.32 billion, while export reached only $104.24 billion.

Warjiyo claimed the domestic economy actually in a decent shape as the country recorded 5.27 percent in economic growth in the second quarter of this year. It reached 5.17 percent cumulatively in the first semester of this year.

In addition, the country also booked tame inflation of 3.18 percent (year on year) in July 2018 and 3.12 percent (year on year) in June 2018.

The domestic and global turmoil has indeed put pressure on the Rupiah exchange rate that depreciated 6.26 percent in July 2018 and 3.94 percent in the second quarter of this year. The rupiah weakened to 7.04 percent against the US dollar since the beginning of this year.

He ensured the balance of payment will soon improve as the central bank and government take firm steps to maintain CAD and stabilize rupiah by increasing exports, reducing imports, and boosting tourism.

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 US$6 billion in market intervention by the end of last week.

Bank Indonesia raised on Thursday its key interest rate by 25 basis point (bps) to 4.50 per cent for the first time since 2014 to support the rupiah and stabilize domestic markets. The Indonesian Central Bank also raised its deposit facility rate by 25 basis points to 3.75 percent, and its lending facility rate by 25 basis points to 5.25 percent.

But despite of the interest rate rise, the rupiah continued weakening against US Dollar. Based on the reference of Jakarta Interbank Spot Dollar Rate (Jisdor), rupiah weakened to Rp14,107 per US Dollar on Friday (18/5), from Rp14,074 in the previous day. In the year to date, the rupiah has weakened 3.7 percent against the US dollar.

Investors are apparently disturbed by Indonesia’s current account as it reflects foreign reserve from trade. Foreign reserve from the trade is more sustainable to support exchange rate rather than capital flows in the capital market.

Indonesia recorded deficit of US$5.5 billion, or 2.15 per cent of GDP, in the first three months this year.

The country posted a surprise US$1.63 billion trade deficit in April 2018, the largest since $1.96 billion in April 2014. In total, the country’s import in April 2018 was up 34.86 per cent to US$16.09 billion from $11.95 billion in April 2017, while export dropped by 7.19 per cent to $14.47 billion from $13.27 billion in the same period last year.

The result in April swung Indonesia’s trade balance in the first four months of 2018 to a deficit of $1.31 billion from a surplus of $5.43 billion in the same period last year.