JAKARTA: Indonesia’s central bank stepped into the currency market to defend the rupiah on Tuesday (Mar 25), as growing concerns over politics, government spending and capital flight pushed the rupiah to its lowest levels since the Asian financial crisis.
The rupiah weakened as much as 0.54 per cent to a low of 16,640 rupiah per dollar in morning trade, extending a slide that has been driven by global market uncertainties and concerns over Indonesia’s fiscal health and growth outlook.
A central bank official told Reuters that Bank Indonesia (BI) had intervened in the spot currency, bond markets and in domestic non-deliverable forwards as the rupiah careened towards its lowest point in 25 years.
Its all-time low was 16,800 rupiah per dollar in June 1998 during the Asian Financial Crisis, according to data from the London Stock Exchange Group (LSEG).
“Global uncertainty is still related to the impact of Trump’s tariff policy and geopolitical turmoil, including the impact of the trade war on China and many other emerging market countries in Asia,” said Fitra Jusdiman, BI’s director of monetary and securities asset management.
US President Donald Trump has already imposed tariffs on major trading partners, including China, Mexico, and Canada, and has said he will impose more tariffs early next month.
Genuine foreign exchange demand from the domestic market for repatriation purposes and other payments also contributed to the rupiah’s weakness on Tuesday, BI’s head of monetary management Edi Susianto told Reuters separately.
“We have entered the market boldly to maintain the balance of FX supply and demand in the market,” he said.
The rupiah later pared its losses and was trading at 16,590 to the dollar of 0515 GMT.
Bank Indonesia has been intervening in the FX market every month this year, ensuring the rupiah’s slide is gradual.
Still, it has fallen 3 per cent versus the US dollar so far this year as foreigners pull billions of dollars from the stock market.
However, concerns over the country’s fiscal health linger following weak state revenues at the start of the year, while the government plans huge spending to reach 8 per cent economic growth by 2029.
The same concerns have also slammed Indonesia’s main stock index, sending it to its lowest intraday level in three years on Monday. It was trading 1 per cent higher on Tuesday.
Lack of clear communication from authorities on the fiscal situation and spending programmes have compounded investors’ concerns, analysts said.
“Conciliatory guidance from the authorities on the fiscal situation and a growth-supportive stance might help to restore confidence in the near-term,” said DBS Bank economist Radhika Rao in an email.
Indonesia’s presidential communication office held a meeting on Monday with economists and financial market analysts to gain input on communication strategy.
Meanwhile, the rupiah is expected to remain weak ahead of a long 11-day holiday in Indonesia to celebrate Eid Al-Fitr, which will start at end of this week, SMBC economist Ryota Abe said.
The outlook for the economy may remain gloomy if BI continues to keep interest rates high to defend the currency, he added.
The central bank maintained its benchmark interest rate at 5.75 per cent in its February’s meeting with a focus on managing rupiah stability, while waiting for the opportunity to slash rates.
Indonesian businesses have been responding to the weak rupiah since the end of last year by tightening their material imports, Indonesian employers association Chairwoman Shinta Kamdani told Reuters.
