Rupiah Hits Record Low as Dollar Breaks 18,000 Threshold
The rupiah weakened to 18,028 per US dollar on Thursday, breaking the psychological 18,000 threshold. Rising energy costs are pressuring Indonesia’s currency and narrowing its trade surplus, while Bank Indonesia says it continues to use available policy instruments and dollar purchases above $25,000 a month now require supporting documents.
JAKARTA — Indonesia’s rupiah fell to a record low against the US dollar on Thursday as the dollar-rupiah rate broke through the psychological 18,000 threshold, reaching 18,028. The weakness adds pressure to an economy that depends on energy imports while oil costs surge.
Bank Indonesia has tried to support the currency, but strong demand for dollars and a shrinking trade surplus continue to weigh on the market. The effect is felt in the supply of foreign exchange needed to pay for energy imports and other needs.
The threshold has been breached.
Al Jazeera reported that higher energy costs were driven by supply shocks linked to the US-Israel war with Iran. The pressure is also being felt by energy-importing Southeast Asian countries, especially Indonesia and the Philippines. Higher oil prices weigh on trade balances and help drive capital outflows and currency weakness.
Dollar-rupiah overshadowed by a shrinking trade surplus
Josua Pardede, chief economist at Permata Bank, said news agency that the 18,000 level is a psychological threshold for market investors. He said high dollar demand from surging oil prices and a narrowing trade surplus helped drive the rupiah’s weakness.
Indonesia’s trade surplus shrank to $89m in April from $3.3bn a month earlier, Josua said. The contraction reduced the supply of dollars in the domestic market while demand for the US currency remained large.
“Dollar supply from goods trade is dwindling, while dollar needs for energy imports, raw materials, dividends, foreign debt payments and seasonality needs remain significant,” Josua said.
Indonesia is a net oil importer, so higher crude prices directly affect the demand for dollars to buy energy. The government, said subsidized fuel prices will remain unchanged.
The pressure feeds through to households and businesses via energy costs and imported raw materials. With dollar supply from trade shrinking while payments for imports and foreign debt remain large, efforts to defend the exchange rate face a tougher challenge.
Bank Indonesia keeps up intervention and dollar rules
Bank Indonesia raised interest rates by 0.5 basis points to 5.25 percent last month. The first increase in two years was aimed at stabilizing the rupiah and containing inflation.
However, Josua said the rate rise and intervention have not been enough to reverse the weakness. He said, “This is why the increase in the BI [Bank Indonesia] lending rate and intervention is not enough to reverse the rupiah’s [depreciation].”
Bank Indonesia spokesperson Ramdan Denny Prakoso said on Wednesday that the central bank continues to use “all available policy instruments” to “maintain adequate foreign exchange liquidity”. Bank Indonesia has also tightened the rules on dollar purchases.
Since May, buyers who acquire more than $25,000 in a month have been required to submit supporting documents explaining their need for US currency. Meanwhile, a US proposal to impose additional tariffs of 10 percent or 12.5 percent on goods from 60 economies, including Indonesia, Malaysia and Singapore, adds to regional uncertainty.
