JAKARTA • The Indonesian rupiah plunged to a record low of 15,090 rupiah per US dollar yesterday, the lowest rate since the 1998 financial crisis, as a result of a combination of pressures, such as the escalating US-China trade war and rising oil prices that may increase the country's trade deficit.
The drop came as a blow to Bank Indonesia (BI), which has increased its benchmark interest rate five times since May to defend the rupiah. The latest hike was made last Thursday, when BI increased its policy rate - the seven-day reverse repo rate - to 5.75 per cent.
Indonesia's central bank governor said yesterday it must raise interest rates ahead of the US Federal Reserve to avoid "drastic" capital outflows.
The comments appear to open the door for another Indonesian rate rise before mid-December, when the Fed is expected to increase US rates for the fourth time this year.
"When we know that the Fed Funds rate will increase, we cannot wait. We have to act first so that the capital reversals will not be drastic," BI governor Perry Warjiyo told a seminar organised by Indonesian political party Golkar.
Permata Bank economist Josua Pardede said the drop in the rupiah was attributable to two main factors - the United States' upper hand in its trade war with China and rising global oil prices.
Since the US began imposing trade sanctions on Chinese products in July, the US dollar index - a measure of the US dollar's value relative to a basket of foreign currencies - has climbed five points to 95.5 from 90.05 in April.
Furthermore, the US has escalated sanctions on China by coaxing Mexico and Canada to join the imposition of trade restrictions on Chinese products via a new North American trade deal.
Based on (banks') capital adequacy ratio, non-performing loans and lending rates as of this October, it seems the adjustment to 15,000 is going well.
INDONESIAN FINANCE MINISTER SRI MULYANI INDRAWATI, hinting that domestic banks might have anticipated that level.
Meanwhile, global oil prices have risen significantly since April, straining the country's already gaping US$1.52 billion (S$2.1 billion) deficit recorded in May - one of the highest among emerging economies.
Mr Josua referred to crude oil benchmarks, Brent and West Texas Intermediate, the prices of which stood above US$85 and US$75 per barrel respectively on Tuesday, far higher than US$64 and US$63 respectively on April 1.
"These have potentially negative effects for net oil importing countries (such as Indonesia) because they will pressure their current account deficits," said Mr Josua on Tuesday as reported by kompas.com.
Finance Minister Sri Mulyani Indrawati told reporters at the Presidential Palace on Tuesday that the government and BI would continue monitoring the rupiah and major economic indicators, including the resilience of the banking industry.
"Based on (banks') capital adequacy ratio, non-performing loans and lending rates as of this October, it seems the adjustment to 15,000 is going well," she said, hinting that domestic banks might have anticipated that level.
THE JAKARTA POST/ASIA NEWS NETWORK, REUTERS