The rupiah has lost 11.2 percent of its value against the greenback since the start of the year, and traded at 13,833 on Friday. (Antara Photo/Yudhi Mahatma)

Rupiah to Hit 17-Year Low: Barclays


FEBRUARY 12, 2015

Jakarta. The Indonesian rupiah may depreciate to a level that has not been seen since the 1998 Asian financial crisis by the end of this year, as investors may reduce inflow to the Southeast Asia country in line with United States’ economy regaining strength, London-based financial firm Barclays said in a report released on Thursday.

Barclays forecasts the rupiah to reach 13,250 per US dollar by year end, a level that was last seen in August 1998, according to Bloomberg data.

The currency has weakened by nearly 3 percent against the greenback to 12,794 so far this year, posting its weakest level in almost two months on Thursday, according to data from Bank Indonesia. The rupiah fell 2 percent against the US dollar last year.

“The Indonesian rupiah has performed negatively versus the US dollar so far this year, falling behind several other Asian currencies... We expect a further gradual depreciation of the [rupiah] in the months ahead,” said Barclays.

The  banking firm noted that US Federal Reserve’s policy rate hike, predicted to kick in by mid year, would become a particular sore point for Indonesia, “especially if this leads to lower capital inflows over 2015.”

The country is relying on foreign capital inflow to its stocks and bonds in order to finance half of its current-account deficit, according to an estimation of Singapore-based lender DBS.

The country’s current account has been in the red for 12 consecutive quarters. The deficit narrowed to $6.8 billion — 3.07 percent of gross domestic product — in the third quarter of 2014 from $8.7 billion, or 3.89 percent of GDP, in the same period a year earlier, BI data show.

Vice president Jusuf Kalla, brushed off concerns on a depreciating rupiah on Thursday, noting that the exchange rate would not cause harm “as long as it’s moving orderly around [Thursday’s] level.” The government assumed its currency would trade in average of 12,500 per US dollar in calculating its revised budget this year.

The weak rupiah, in making locally-produced goods cheaper abroad, would boost exports while helping reducing import as companies and households are discouraged by more expensive imported goods, Kalla said.

Barclays said that persisting pressure on the rupiah could lead to a tighter monetary stance from Bank Indonesia, forecasting that the central bank will raise its policy rate by 25 basis points to 8 percent at the end of the year. This would be a level that’s “high enough to limit the potential for hot money outflows,” said Barclays.