Welcome to rupiah’s new normal, Indonesia signals

As rupiah languishes near levels last seen in 1998, Indonesian officials see it as a manageable situation


JAKARTA • Indonesian policymakers wrestling with a weaker currency have a message for the market: Welcome to the new normal.

As the rupiah languishes near levels last seen in 1998, Indonesian officials are making it clear they see the situation as manageable. Rather than hit the panic button, both the central bank and government maintain South-East Asia’s biggest economy is on solid ground, and could even benefit from the rout.

“In terms of stability, Bank Indonesia (BI) will certainly keep managing the exchange rate so that we will be able to guard the economy and adjust to a new equilibrium level,” Finance Minister Sri Mulyani Indrawati said last week.

“We must cautiously monitor this level. But I also see that the adjustment in our economy to the normalisation level of US monetary policy, which affects the rupiah value, can go quite well.”

Indonesia’s economy has been one of those hardest hit by a stronger dollar and rising US interest rates — its currency has slumped 11% against the greenback this year. Yet, at the same time, there are signs of global investors coming back: Funds have bought about US$870 million (RM3.62 billion) of government bonds this year as foreign ownership rebounds from last month’s low.

Indonesia’s central bank has mounted an aggressive response to the emerging-market rout, raising its key reference rate by 150 basis points since May. BI has also been intervening in the currency and bond markets to stabilise the rupiah, with its stash of foreign reserves falling about 13% this year from a record amount in January.

The rupiah, meanwhile, has continued to weaken, slumping to 15,248 per dollar yesterday, the lowest since July 1998 when the economy was at the centre of the Asian financial crisis. Still, BI governor Perry Warjiyo is adamant that it’s not so much where you are, but how you get there.

“Of course, our rupiah is under firing,” he said, adding however, that it had depreciated less than currencies in India, South Africa, Turkey and Argentina.

While the rupiah is this year’s worst-performing currency in Asia after the rupee, the Argentinian peso is down more than 50%. The rand has weakened more than 16% while the lira has plunged about 38% against the dollar.

“Our depreciation is still manageable,” Warjiyo said.