Factors Causing the Rupiah Continued To Weaken

The rupiah against the U.S. dollar continues to erode and hold above 10,000 in the past week. In fact, already approaching the position in Rp10.300 per U.S. dollar.

The slide above the 10,000, according to the Jakarta Interbank Dollar Spot Rate (JISDOR) Bank Indonesia recorded, occurred since July 15, 2013. Where, the rupiah fell in Rp10.024 per U.S. dollar level of the previous Rp9.980.

Trade until Wednesday, July 24, 2013, Indonesia's currency is weakening against the U.S. dollar in Rp10.262 position.

Government, in this case the Bank of Indonesia, of course, do not stay silent and continue to try to do a variety of ways to reduce the weakening rupiah. For example, raised the BI rate. Because, if it continues to weaken will undermine economic growth.

Gajah Mada University economist, as well as Independent Commissioner of PT Bank Permata Tbk, Tony Prasetiantono said that the impact of the weakening of the rupiah will make credit growth slowed to 19 percent from its current position in the range of 22 percent. "Later, it was also to the economic slowdown impacting us," he told headline.

Indonesia's economic growth, according to Tony, will be shifted to the range of 5.9 to 6.0 percent, from 6.3 percent targeted by the government this year.

To that end, Tony suggested that Bank Indonesia issued its policy, including raising the BI rate. "I recommend the BI Rate was raised again to 6.75 per cent, because I suspect interest rates have yet to find its equilibrium is more appropriate," he said.

Meanwhile, Chief Economist Strategy & Performance Management Division, State Savings Bank Tbk, A. Prasetyantoko argued, if the rupiah continued to weaken against the U.S. dollar, domestic liquidity decreases.

"Because it costs more to acquire expensive liquidity, credit expansion will not be maximized. And of course, economic growth will be corrected," he told headline in a separate place.

Other influence, added Prasetyantoko, which can be through inflation. Goods more expensive, so mengerus purchasing power and consumption levels. "Yes, the same effect, namely to erode economic growth," he said.

Rupiah seek a balance point
Meanwhile, Chief Economist at Bank Mandiri, Destry Damayanti, judging that the current rupiah is heading a new equilibrium point after hitting 10,000 per U.S. dollar.

He predicts, will be the weakening rupiah rupiah because fundamentals are still very heavy. "In the long run yes, we are still weakening rupiah. Least next year but will rupiah rebounded," she told the headline.

Destry explained various factors make the rupiah weakened. The two main causes are high raw material imports were 77 percent of total imports and repatriation of dividend yields.

Indonesia, he said, can not expect much with the availability of U.S. dollars in the country given the global economic conditions have stabilized. High demand for U.S. dollars in the domestic market is not matched by supply. To that end, it had to work hard to keep the exchange rate movements.

A. Prasetyantoko also said there are two causes of the rupiah continued to weaken. First, the economic fundamentals in the country, the level of exports and imports. Where noted, we are now importing more than exporting. "Obviously, it causes the amount of money that comes out of here," he said.

Secondly, the weakening of the rate of inflow or flow of foreign funds into the country. "Now look, the investment is not as extensive as before," said Prasetyantoko.

However, he admitted that global economic growth has impacted the rate of the rupiah against the U.S. dollar. "Yes, peak September. If the global economy recovers, it is likely to move a stable rupiah," he said.

Governor of Bank Indonesia, Agus Martowardojo, in a written explanation in Jakarta, confirmed, weakening rupiah currency is influenced by the high demand by corporate and retail customers, including for dividend repatriation.

Agus explained, when compared with the position in early 2013 (year to date), the exchange rate depreciated by 5.71 percent. This condition is in line with the depreciation of the currencies of other countries in the region.

"In recent days, the rupiah began to converge to a new equilibrium level, which reflects the condition of Indonesia's economic fundamentals," said Agus.

Agus see, the foreign exchange market is getting excited with the market mechanism works better. To that end, the central bank asked that the public and market participants remain calm.

"BI will always be there in the market and keep a careful monitoring, and maintaining the stability of the exchange rate in accordance with the economic fundamentals that market mechanisms work well," said Agus.

Kick Bank Indonesia
Bank Indonesia issued a number of guidelines to reduce the weakening rupiah, including raising the interest rate of Bank Indonesia Deposit Facility (Fasbi rate) or a deposit facility by 25 basis points to 4.25 percent.

Fasbi is a facility provided to banks to place their funds in Bank Indonesia in Rupiah.

Agus said the policy was to maintain the stability of monetary conditions, as a weak exchange rate lately. "Bank Indonesia is ready to undertake the necessary steps," said the former finance minister.

In addition, he explained, Bank Indonesia will meet the needs of forex and rupee liquidity in the market. The move comes as a preemptive effort in maintaining monetary stability.

Deputy Governor of Bank Indonesia, Perry Warjiyo, adding that the central bank also issued a currency swap auction policy or FX Swap is done every week to stabilize the rupiah exchange rate against foreign currencies without worrying about emerging risks. "Of course this will increase the amount of our foreign exchange reserves, which obviously I do not see any risk," he said.

FX Swap is one of the mechanisms of open market operations, in which the central bank will be the party to conduct the auction, and the foreign banks that require a bidder to submit a bid price.

Perry explained that the rupiah is much more stable. A few months ago Indonesia's foreign reserves pressured by foreign capital flows out of the market Government Securities (SBN) of U.S. $ 4.1 billion. "Now there is no outflow, inflow, and it even happens to add up. Moreover, with the new range of instruments that we issue, of course, will add to foreign exchange," he said.

BI, he said, will perform a variety of policies to curb depreciation, one of which is the adjustment of interest rates, foreign currency time deposits (term deposits) and the latest FX Swap.

Perry explains, the central bank will do the FX Swap every Thursday each week, with the aim of ensuring the availability of rupiah and foreign currency in the country as more and more foreign investors to enter.

According to the Chief Economist of Bank Mandiri, Destry, BI issued instrument measures the FX Swap is that banks can also be active in it. However, he considered that the measures that raise the BI Rate and Fasbi BI Rate to control the weakening rupiah was right.

In fact, he believes the central bank will increase again Fasbi Rate by 50 basis points to strengthen the rupiah.

The weakening of the rupiah is still good
Gajah Mada University economist, said Tony Prasetiantono depreciation against the U.S. dollar is still relatively small when compared with other countries in the region such as Malaysia and Korea.

"Depreciation of dollars in the last year is still under some currencies other Asian countries, such as the yen, baht, rupee, won, ringgit and Philippine peso. Thus, depreciation is still within reasonable limits," he said.

Tony said, the appreciation of the U.S. dollar against Asian currencies in the last year recorded 33 percent yen, baht 22 per cent, 19 per cent rupee, won 10 percent, 9 percent ringgit, peso 9 percent, 8 percent rupiah, Singapore dollar 6 percent, 4 percent yuan , and the Hong Kong dollar 0.2 percent.