The value of the Indonesian currency, the rupiah, recorded a sharp decline against the US dollar in the trading session last Tuesday.
According to Refinitiv data, the rupiah depreciated 0.21% to Rp16,860 against the US dollar, thus recording the lowest value since April last year and almost reaching a record low in history.
Maybank Indonesia economist, Myrdal Gunarto explained that the weakness of the rupiah currency was caused by the outflow of foreign funds, especially in the government bond market.
He also stressed that the pressure is still under control and Bank Negara Indonesia (BNI) has enough opportunity to intervene to stabilize the rupiah value again.
Meanwhile, the strong resistance level for the rupiah is currently at Rp16,992, indicating that there is room for recovery if the right steps are taken.
Global geopolitical tensions including the conflict between the United States (US) and Venezuela, Russia and Ukraine, as well as uncertainties in the South China Sea have prompted investors to now turn to the US dollar.
At the same time, high demand for the US dollar has affected emerging market currencies such as the rupiah.
Permata Bank Chief Economist Josua Pardede stated that the weakness of the rupiah is also due to a combination of external pressures and market sensitivity to domestic issues.
The strengthening of the US dollar and the volatility of world oil prices have increased concerns about Indonesia's widening current account deficit due to rising energy import costs.
Meanwhile, the weakness of the yen and the surge in oil prices have forced investors to shift to more stable and liquid assets.
The situation is also influenced by various domestic and global factors including policy uncertainties in developed countries, changes in global interest rates, commodity price fluctuations, as well as concerns about the economic growth of major trading partners have triggered large-scale capital outflows.
Josua predicted that the rupiah may reach Rp16,900 in the near term, given the price movement that has exceeded the normal short-term range and the increasingly pronounced intraday pressure.
BNI now needs to act quickly to ensure that the weakness of the rupiah does not worsen to the point of affecting the stability of the country's economic fundamentals.
