Indonesia's Rupiah Outperforming Global Currencies, Risks Remain

Jakarta, 26 Jumadil Awwal 1437/06 March 2016 (MINA) – The Indonesian rupiah has become the center of attention being the strongest emerging market currency (tracked by Bloomberg) so far this year.

Indonesia’s currency has appreciated 4.97 percent (spot market) against the US dollar since the start of 2016, outperforming the Brazilian real and Malaysian ringgit, Mi’raj Islamic News Agency (MINA) reported, quoting indonesia.investments.com

Meanwhile, Indonesian government and central bank officials say they are committed to encourage further strengthening of the rupiah.

On Friday (04/03), Bank Indonesia’s benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.76 percent to IDR 13,159 per US dollar.

Also Read: World Bank Cuts Forecast for Indonesia's 2016 GDP Growth to 5.1%

Strong rupiah performance is caused by improving investor confidence in Indonesia’s economic fundamentals (particularly after seeing Indonesia’s better-than-expected Q4-2015 GDP growth), recently rising crude oil prices (which should encourage higher prices of other commodities such as crude palm oil, natural gas and coal), Indonesia’s attractive yields (while Japan, the Eurozone, Sweden, Denmark and Switzerland have adopted negative interest rates), and improving macroeconomic indicators of Indonesia such as inflation and the current account balance.

Lastly, the US dollar has recently been weakening due to bleak US macroeconomic data. As a result Indonesia has been ‘rewarded’ with capital inflows, hence giving rise to a stronger rupiah.

Also Read: World Bank Predicts Indonesian GDP Growth at 5.1 Percent

Indonesia’s Chief Economics Minister Darmin Nasution said the nation’s financial authorities need to implement further steps to ensure capital inflows will not rapidly flow back abroad (in other words, avert a sudden reversal of so-called hot money).

In the first two months of 2016 a total of IDR 35 trillion (approx. USD $2.6 billion) of foreign funds have flown into Indonesia’s securities and capital markets.

However, IDR 1.9 trillion (approx. USD $144 million) has already been moved outside Southeast Asia’s largest economy due to profit taking. (R07/R01)

Mi’raj Islamic News Agency (MINA)