Rupiah: Gloomy Year Ahead?

On (4/1), Indonesia has just raised the stakes for Rupiah traders. According to the finance minister, Sri Mulyani Indrawati, the currency may fall to an unsettling 17,500 IDR per USD this year. If unfortunately, the worst-case scenario materializes and the economy succumbs under the weight of the Coronavirus pandemic, that would mean a currency level of 20,000 IDR per USD. That level is more than 15% lower than the all-time low of 16,950 IDR per USD reached during the Asian financial crisis. Though it remains fragile on the external debt front, Chang Wei Liang, a macro strategist at DBS Bank in Singapore, stated that Bank Indonesia is still in a strong position to lean towards IDR vulnerability as the import coverage ratio of Indonesia is convenient. The biggest concern is that the fall of Rupiah may truly worsen in the coming days if policymakers step back from protecting the currency to maintain their dollar holdings. The forecast that Rupiah may weaken up to 20,000 IDR per USD can be attributed to several disheartening projections in light of recent events. On Wednesday (4/1), Sri Mulyani estimates that Indonesia’s economic growth could plummet from the initial expectation of 5.3% to a mere 2.3%. In the worst case scenario, growth is projected to be as low as 0.4%. On top of that, the debt-to-GDP ratio is regrettably speculated to remain at about 60%, while the state budget (APBN) is predicted to decrease by 10%. Not to mention, worries of widespread job losses cause great concern due to the fact that out of Indonesia’s 270 million working population, 70 million are accounted for in the informal sector of employment. Now, these forecasts are slowly deconstructing the once-promising growth of Indonesia’s economy. Thus, to regulate and minimize the severity of the fall of IDR, President Jokowi has signed a decree allowing for the central bank to participate in the auction of sovereign bonds. This is hoped to be a catalyst for the government in meeting its larger budget financing needs. On the other hand, the rising global stock market index levels are still impacting the Indonesia Composite Index (IHSG) positively (4/1). RTI data shows that the composite index is foreseen to rise by 1.7% from 4,4897 to 4,555.34, despite the continuous weakening of rupiah. Asian stock markets, however, are still fluctuating as some indices such as Hang Seng Index and Nikkei Index went down by 0.92% and 1.26% while others like Shanghai Composite Index and LQ 45 rose as much as 0.3% and 0.67% respectively. Overall, other Indonesian sectors remain uncertain and fluctuant as well. Source : Bloomberg Kompas

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