Tuesday 09, October 2018 by Bloomberg

Welcome to rupiah's new normal, Indonesia policy makers signal

 

Indonesian policy makers wrestling with a weaker currency have a message for the market: welcome to the new normal.

As the rupiah languishes near levels last seen in 1998, Indonesian officials are making it clear they see the situation as manageable. Rather than hit the panic button, both the central bank and government maintain Southeast Asia’s biggest economy is on solid ground and could even benefit from the rout.

“In terms of stability, Bank Indonesia will certainly keep managing the exchange rate so that we will be able to guard the economy and adjust to a new equilibrium level,” Finance Minister Sri Mulyani Indrawati said last week. “We must cautiously monitor this level. But I also see that the adjustment in our economy to the normalization level of US monetary policy, which affects the rupiah value, can go quite well.”

Indonesia’s economy has been one of those hardest hit by a stronger dollar and rising US interest rates—its currency has slumped 11 per cent against the greenback this year. Yet at the same time, there are signs of global investors coming back: funds have bought about $870 million of government bonds this year as foreign ownership rebounds from last month’s low.

Indonesia’s central bank has mounted an aggressive response to the emerging-market rout, raising its key reference rate by 150 basis points since May. Bank Indonesia has also been intervening in the currency and bond markets to stabilize the rupiah, with its stash of foreign reserves falling about 13 per cent this year from a record amount in January.

The rupiah, meanwhile, has continued to weaken, slumping to 15,248 per dollar on Monday, the lowest since July 1998 when the economy was at the centre of the Asian financial crisis. Still, Bank Indonesia Governor Perry Warjiyo is adamant that it’s not so much where you are, but how you get there.

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