JAKARTA • The Indonesian authorities yesterday downplayed the weakening rupiah, which hit a fresh 17-year low against the US dollar, saying it would not have a significant impact on South-east Asia's largest economy.
The steadily weakening currency, driven in part by the strength of the US dollar, comes as Indonesia's economy falters, and is driving up the cost of imported goods while making exports more attractive.
While the government has plans to boost spending, particularly on big-ticket infrastructure projects, to resuscitate the economy, growth is running at a more than five-year low of 4.7 per cent, far below the level economists say is needed to reduce poverty and create more jobs in the world's fourth most populous nation. President Joko Widodo last year targeted annual growth of 7 per cent within the next three years, a goal he considered realistic.
The weakening rupiah, though, is further denting his ambitions. It is the second-worst performing Asian currency this year after the Malaysian ringgit. The rupiah fell as much as 0.2 per cent yesterday to 13,395 per US dollar, its weakest since August 1998. "The ups and downs of the rupiah are normal. It will not have a big impact," chief economics minister Sofyan Djalil said. "The government (with the central bank) will try to safeguard the rupiah in accordance to its fundamentals."
Central bank spokesman Peter Jacobs said there were no significant changes in the domestic foreign exchange market and the cause of the weakening rupiah was due to "external sentiments".
The greenback gained against a basket of currencies on Wednesday after data showed US home resales hit an 81/2-year high in June.
Caution is growing over possible intervention by Bank Indonesia to prop up the rupiah. Central bank deputy governor Mirza Adityaswara on Wednesday said it was always in the forex market, especially when the rupiah is undervalued.
The situation is not helped by faltering growth across Asia, prompting investors to look elsewhere.
"There's a shift in investor interest from Asia to places like Europe due to growth considerations and expectations for higher yields," Mr Saktiandi Supaat, head of foreign exchange research at Malayan Banking in Singapore, said yesterday.