BI Appeal: Don't Get Lack of Rupiah Strengthening
KanalUtama. Bank Indonesia (BI) reminded all parties not to fall asleep with the strengthening of the rupiah exchange rate against the US dollar. As long as Indonesia is still experiencing a Current Account Deficit / CAD, the volatility of the rupiah exchange rate will still be vulnerable.
A high current account deficit makes investors in global markets tend to react faster by withdrawing their capital in Indonesia if there is turmoil in the global market.
"We should not be lulled by the exchange rate strengthening because we still have to solve the CAD problem, continue to encourage increased exports, tourism, and control unnecessary imports," said Bank Indonesia Senior Deputy Governor Mirza Adityaswara in Jakarta on Friday.
Based on BI data, the current account deficit in the third quarter of 2018 reached 3.37 percent of GDP. The deficit was the highest during the administration of President Joko Widodo.
Nevertheless, BI estimates that the current account deficit could fall to around 2.5 percent of GDP as a result of the issuance of the 16th Economic Policy Package.
The rupiah exchange rate moved higher since the beginning of last month. On Monday, the rupiah was even at Rp14,244 per US dollar, the strongest since last July.
However, from Tuesday to Thursday, the rupiah had dropped to 276 points. The weakening of the rupiah, Mirza admitted, was the deepest among other Asian currencies.
In trading on the spot market this weekend, the rupiah finally closed higher and was in the position of Rp14,465 per US dollar.
Mirza explained that the weakening of the exchange rate in the past few days was still influenced by the sentiment of the US-China trade war. Market participants believe the war between the two countries continues.
Moreover, Mirza continued, there was an arrest incident of the Chief Financial Officer (CFO) of Huawei Meng Wanzhou or Sabrina Meng in Canada who was followed up with extradition to the US. In addition to serving as CFO, Meng also serves as Deputy Chair of the Huawei Board and is the daughter of Huawei's founder, Ren Zhengfei.
A Huawei spokesman said Meng was detained by Canadian authorities on behalf of the United States. According to him, Huawei is currently facing demands related to violations of US sanctions against Iran in the US.
Mirza said, this trade war made market players worry about the emergence of obstacles to the pace of world economic growth.
"Then it is feared that there will be a response from Chinese banks by depreciating the Chinese Yuan, which is feared to be able to make depreciation in emerging market countries," Mirza explained.
Head of the BI Monetary Management Department, Nanang Hendarsah, explained that the strengthening of the rupiah this weekend was also encouraged by his intervention through the Domestic Non-Deliverable Forward (DNDF) transaction.
"Since the opening of the market until closing, BI has intervened in DNDF transactions and succeeded in lowering the DNDF exchange rate which was then followed by the NDF exchange rate in foreign markets and spot market rates in the country," he explained.
Mirza believes the rupiah exchange rate against the US dollar in 2019 will be more stable than this year. The reason, the US economy next year is predicted to slow down, thus opening the door for foreign capital flows that are currently moving to the US back to the Indonesian market.
He also believes, the yield of 10-year US debt securities or US Treasury will drop from the current position of 3 percent. This condition is expected to attract foreign investors to move their funds to Indonesia.
"Hopefully the capital will return to emerging markets including Indonesia. So if we are optimistic the exchange rate in 2019 will be more stable. And financial markets in Indonesia and other emerging markets are better in 2019," Mirza explained.
A high current account deficit makes investors in global markets tend to react faster by withdrawing their capital in Indonesia if there is turmoil in the global market.
"We should not be lulled by the exchange rate strengthening because we still have to solve the CAD problem, continue to encourage increased exports, tourism, and control unnecessary imports," said Bank Indonesia Senior Deputy Governor Mirza Adityaswara in Jakarta on Friday.
Based on BI data, the current account deficit in the third quarter of 2018 reached 3.37 percent of GDP. The deficit was the highest during the administration of President Joko Widodo.
Nevertheless, BI estimates that the current account deficit could fall to around 2.5 percent of GDP as a result of the issuance of the 16th Economic Policy Package.
The rupiah exchange rate moved higher since the beginning of last month. On Monday, the rupiah was even at Rp14,244 per US dollar, the strongest since last July.
However, from Tuesday to Thursday, the rupiah had dropped to 276 points. The weakening of the rupiah, Mirza admitted, was the deepest among other Asian currencies.
In trading on the spot market this weekend, the rupiah finally closed higher and was in the position of Rp14,465 per US dollar.
Mirza explained that the weakening of the exchange rate in the past few days was still influenced by the sentiment of the US-China trade war. Market participants believe the war between the two countries continues.
Moreover, Mirza continued, there was an arrest incident of the Chief Financial Officer (CFO) of Huawei Meng Wanzhou or Sabrina Meng in Canada who was followed up with extradition to the US. In addition to serving as CFO, Meng also serves as Deputy Chair of the Huawei Board and is the daughter of Huawei's founder, Ren Zhengfei.
A Huawei spokesman said Meng was detained by Canadian authorities on behalf of the United States. According to him, Huawei is currently facing demands related to violations of US sanctions against Iran in the US.
Mirza said, this trade war made market players worry about the emergence of obstacles to the pace of world economic growth.
"Then it is feared that there will be a response from Chinese banks by depreciating the Chinese Yuan, which is feared to be able to make depreciation in emerging market countries," Mirza explained.
Head of the BI Monetary Management Department, Nanang Hendarsah, explained that the strengthening of the rupiah this weekend was also encouraged by his intervention through the Domestic Non-Deliverable Forward (DNDF) transaction.
"Since the opening of the market until closing, BI has intervened in DNDF transactions and succeeded in lowering the DNDF exchange rate which was then followed by the NDF exchange rate in foreign markets and spot market rates in the country," he explained.
Mirza believes the rupiah exchange rate against the US dollar in 2019 will be more stable than this year. The reason, the US economy next year is predicted to slow down, thus opening the door for foreign capital flows that are currently moving to the US back to the Indonesian market.
He also believes, the yield of 10-year US debt securities or US Treasury will drop from the current position of 3 percent. This condition is expected to attract foreign investors to move their funds to Indonesia.
"Hopefully the capital will return to emerging markets including Indonesia. So if we are optimistic the exchange rate in 2019 will be more stable. And financial markets in Indonesia and other emerging markets are better in 2019," Mirza explained.
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